What principle allows insurers to predict claims more accurately?

The principle that allows insurers to predict claims more accurately is the Law of Large Numbers. This statistical concept asserts that as the number of events (in this context, insurance policies or claims) increases, the actual results will tend to get closer to the expected result. Essentially, this means that insurers can use historical data and large samples of similar risks to determine expected losses accurately.

For example, if an insurer has a large pool of policyholders, they can analyze past claim data to predict future claims more effectively. This principle is crucial in helping insurers set premiums appropriately and maintain financial stability, as it provides a reliable basis for estimating the overall costs associated with claims over time. The law enhances predictability, enabling insurers to manage risk and ensure that they have enough funds to cover claims when they arise.

The other principles mentioned, such as the Principle of Indemnity, which focuses on reimbursement for losses rather than profiting from insurance, the Doctrine of Subrogation, which allows insurers to pursue third parties for loss recovery, and the Principle of Utmost Good Faith, which requires honesty in insurance contracts, do not primarily focus on the statistical prediction of claims but rather on ethical considerations and operational practices within insurance policies.