General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
An A&H insurer uses a morbidity table to price a block of disability policies. The law of large numbers supports this pricing because:
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Answer & full 3-part explanation (select an option above, or peek)
Why C is correct
The law of large numbers holds that the more homogeneous exposure units an insurer has, the more closely actual results converge to expected results. A morbidity table reflects the expected disability frequency and severity for a large population; the larger the insured block, the more accurate the prediction and the more stable the pricing. The law operates on groups, never on individuals, which is why insurers actively seek large blocks of similar risks rather than trying to predict any one person's claims.
Why the other options are wrong
- A) The law of large numbers predicts group outcomes; it can never predict the claims of a particular insured.
- B) Underwriting remains necessary to keep the pool homogeneous and to control adverse selection.
- D) No insurer can guarantee actual claim counts; the law describes the convergence of experience, not a cap on claims.
Memory hook
Predict the crowd accurately, never try to predict the single person.