General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An insurer writes thousands of similar disability policies in one occupational class. The main benefit of this large volume to the insurer's pricing is that:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Large volume produces credible loss data. When actual losses closely track expected losses, the insurer can price the class accurately and the rate remains adequate because random year-to-year fluctuations are dampened. This rate stability protects both the insurer's solvency and policyholders, who avoid large premium swings. The law of large numbers is therefore the statistical foundation of sound rate-making, not a mechanism for individual-level pricing.
Why the other options are wrong
- B) Premiums always include loading for expenses and profit; volume does not remove the expense component.
- C) Insurers price by risk class using group experience; individual-level pricing is neither possible nor the purpose of pooling.
- D) Classification remains necessary; volume improves prediction within classes, it does not merge different classes together.
Memory hook
Many policies = steady numbers = honest rates. Few policies = guesswork = wobbly premiums.