2007-01-12 05:34:03 · 3 answers · asked by jennyvee413 2 in Business & Finance ➔ Insurance
Insurers routinely rely upon the "law (or rule) of large numbers" when determining what premium to charge for a policy.
For example, if Quality HMO only issues policies to individuals who are completely healthy (i.e. within the same risk class), each person has the same likelihood of incuring a claim that will affect the company's profits. Actuarially, this is taken into account to determine the actual cost for insurance, plus a built-in risk factor, plus profit for expenses, employee salaries, etc. Added together, this dollar amount equals the premium charged.
2007-01-12 05:42:02 · answer #1 · answered by Suzanne: YPA 7 · 0⤊ 0⤋
This is the basis of insurance. Take a large group of similar people, and spread the risk of loss, among all of them.
"The law of large numbers"
2007-01-12 13:47:54 · answer #2 · answered by jcollins_24 2 · 1⤊ 0⤋
Actuary tables
2007-01-12 13:40:48 · answer #3 · answered by SALMON 5 · 0⤊ 0⤋