In Order for the Law of Large Numbers to Work

question 51

Multiple Choice

In order for the law of large numbers to work, the pooled exposures must have approximately the same probability of loss.Insurers must therefore:

• A)classify exposures according to expected loss.
• B)restrain from insuring individuals with significant differences in the probability of loss.
• C)encourage underwriters to concentrate on loss frequency rather than severity.
• D)encourage actuaries to concentrate on frequency of losses.
• E)concentrate on tapping heterogeneous exposures.

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