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3 Cards in this Set
- Front
- Back
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Law of Large Numbers |
The larger the data set, the more reliable the statistic. Insurance companies hire actuaries who use statistics and the law of large numbers to determine expected losses and the premium needed in order to cover those losses. Insurance companies are able to pool a large number of policies (law of large numbers) which allows them to be pretty accurate with their loss predictions. Do you have a greater chance of reaching the probability of 50% heads and 50% tails if you flip the coin 10x or 1,000x? Clearly, the more you flip the coin, the more likely you are to reach that probability |
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Underwriting |
Is the function of an insurance company that evaluates policyholders to determine insurance eligibility and pricing An insurance company’s underwriting dept. sets eligibility guidelines for new applicants and policy renewals Underwriters make sure the insurance company charges just the right amount for the coverage it provides. They figure how much risk you represent, how much coverage the company can offer you, and how much that coverage should cost. |
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Contract (How insurance works) |
Insurance in its most basic form is a contract by which an insurance company agrees to compensate you for a covered loss in return for a payment of premium. Instead of handling the cost of an accident or paying for someone else’s medical bills or repairs due to an accident, you pay an insurance company to handle it for you. |
