YOU ASK:

What is the definition of Law of Large Numbers?

WE ANSWER:

The Law of Large Numbers is an essential part of computing the premiums of an insurance policy.

This aspect of the theory of probability points to the fact that the larger the number of units involved, the greater the probability that the predictions will be more accurate. In the insurance industry, when there are a large number of people insured for the same risk, actuaries are more able to predict loss with more accuracy.

This is the reason why insurance companies are hesitant about covering risks that are fairly new, since there is little statistics and loss experience to base the premiums upon.

The Law of Large Numbers more or less "guarantees" stable results for events that happen at random.

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