Ace the Chartered Life Underwriter Challenge 2026 – Secure Your Success and Dominate the Exam!

The law of large numbers states that as the number of exposure units (in this case, insured individuals or properties) increases, the actual loss experience will get closer to the expected loss experience. This principle underlies many aspects of insurance, particularly in risk management and premium setting.

For an insurance company, this means that when they insure a larger number of similar risks, the aggregate losses that occur will more closely align with their predictions based on statistical models. As a result, insurers can set premiums more accurately and have a better understanding of the potential payouts they will need to make. This improves their financial stability and the sustainability of coverage since they can predict future claims with greater certainty.

By operating on this principle, insurance companies can manage their risk more effectively, ensuring they have sufficient funds to cover claims while maintaining profitability. This is vital for their operation and affects how they approach underwriting and pricing of insurance products.