General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
For the law of large numbers to improve the accuracy of loss prediction, the exposures within the pool should be:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The law of large numbers works best when exposures are similar and homogeneous — subject to roughly the same chance of loss. Homogeneity lets the actuary treat the group as one statistical population and estimate expected claims from its aggregate experience. This is why insurers classify risks into groups such as age, health, and occupation rather than mixing fundamentally different exposures into a single pool.
Why the other options are wrong
- B) Mixing completely different exposures corrupts the statistical estimate; homogeneity, not variety, makes prediction reliable.
- C) More exposures improve prediction; there is no limit at one hundred that makes the law work.
- D) Claim amounts are inherently variable; equal claim amounts are not required and would not change how the law operates.
Memory hook
Like apples with apples. Homogeneous pools make the math honest.