General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An actuary notes that expanding a disability insurance pool from 5,000 to 50,000 similar insureds improves the accuracy of loss projections. The reason is that:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The law of large numbers holds that as the number of similar, independent exposures grows, the variation between actual and expected losses shrinks - random fluctuations average out. With 50,000 similar lives, the actuary can estimate total claims much more tightly than with 5,000. The improved projection applies to the group, never to individuals, and administrative costs are separate from statistical accuracy.
Why the other options are wrong
- B) Statistical theory applies fully to large pools; the law of large numbers is precisely the mechanism.
- C) Individual claims remain unpredictable; only group aggregates become stable.
- D) Administrative costs exist regardless of pool size and do not disappear.
Memory hook
More lives, less noise. Growth smooths the curve.