What statistical principle helps insurance companies predict loss occurrences within a group?

The principle that assists insurance companies in predicting loss occurrences within a group is the Law of Large Numbers. This statistical principle states that as the number of exposures or observations increases, the actual loss experience will tend to get closer to the expected loss or average outcome. In the context of insurance, this means that when a company insures a large number of similar risks, it can more accurately forecast the total expected losses, allowing them to set premiums accordingly.

For example, if an insurer has data on thousands of car accidents over the years, it can analyze this data to predict future losses and determine how much to charge policyholders. This principle is foundational for establishing rates and ensuring that the insurance pool is financially viable.

Other concepts mentioned, such as Loss Ratio, Limits of Liability, and Inherent Vice, serve different purposes within insurance but do not offer the same predictive capability regarding loss occurrences across a broader group of risks as the Law of Large Numbers does.