Why Is a Large Number of Exposure Units Generally Required

question 1

Multiple Choice

Why is a large number of exposure units generally required for a risk to be insurable?

• A) It allows the insurer to accurately predict the aggregate dollar amount of loss.
• B) It allows for at least some losses to occur.
• C) It reduces speculative risk.
• D) It reduces both the speculative risk and pure risk.

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Definitions:

Graphical Method

A technique of solving mathematical problems by representing them with graphs.

Experiment

A scientific procedure undertaken to make a discovery, test a hypothesis, or demonstrate a known fact by controlling and varying one or more variables.

Mutually Exclusive

Events that cannot occur at the same time, implying that the occurrence of one event excludes the occurrence of the other.

Events

Outcomes or occurrences that can be clearly defined, measured, and distinguished from other events in a probability context.