General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
In insurance mathematics, the 'chance of loss' is best described as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The chance of loss is the probability that a loss will occur — for an individual exposure it is the likelihood of that person's loss, and for a group it is the expected proportion of the group that will suffer losses. Actuaries estimate this probability from historical data, and the law of large numbers makes the estimate more reliable as the pool grows. The chance of loss is the foundation of premium setting and reserve calculation in every insurance line.
Why the other options are wrong
- B) Losses already paid are past claim experience, not the forward-looking probability called the chance of loss.
- C) Policy cancellations measure lapse or persistency rates, which are unrelated to the probability that a loss will occur.
- D) An application fee is an administrative charge, not a statistical measure of loss probability.
Memory hook
Chance of loss = the odds a claim happens. Actuaries compute those odds from data.