Insurance – In order for the law of large numbers to work, the pooled exposures must have approximately the same probability of loss (that is, it must follow the same probability distribution). Discuss the design of an insurance policy for insuring cars using the law of large numbers. Include in your summary why insurers rely on the law of large numbers. Include in your policy the importance of identifying the likely risk associated with each customer and categorizing your customers into lower-risk or higher-risk insurance pools. Besides safe driving, what other factors contribute to this less risky pool – in other words, how can your company identify risky drivers?
