Discuss the design of an insurance policy for insuring cars using the law of large numbers.

Insurance – in order for the law of large numbers to work, the pooled

According to the law of large numbers, the average result of a number of tests should approximate the value expected. This will become more accurate as the trials increase. Insurers can therefore use this principle to design an insurance policy that covers cars. By collecting information on claims frequency and severity over time, they can then use that data to set premiums according to different risk categories or age groups.

Insurers use the law of large numbers to determine how much coverage each client should pay. Using the law of large numbers helps them take into account various factors such as location or driving history when determining rates so that they are able to accurately price policies while also managing their own risk exposure – allowing them to remain profitable in the long-term. Finaly, after gathering enough information about previous events, businesses can modify their pricing model to ensure that the customers are charged fairly based upon individual circumstances.