What do you mean by the number of insured pieces? Is it the number of policies?

The law of large numbers is divided into mathematical law of large numbers and statistical law of large numbers. Insurance companies spread risks through reinsurance, which is based on the statistical law of large numbers. The risks taken by insurance are accidental, so it is difficult to predict the occurrence regularity of individual risks. However, after long-term observation of similar things, we can find out the roughly correct danger frequency. For example, a house fire and a person's death are unpredictable for a house and a person, but the probability of the number of deaths or the number of fires can be calculated by gathering as many people or houses as possible and observing them for a period of time. The more people or houses are observed, the more accurate and standardized the probability is. For example, suppose every 10 buildings in every 10,000 buildings are on fire, and the probability is11000 or 0.00 1, but in fact, there are 13 buildings on fire in a certain year, and there may be 7 buildings in a certain year, so there may be a difference of 3 buildings between10. When the number of observed buildings increases to 10000, the probability is still 0.00 1, but the actual difference decreases a lot every year. The following table shows the ratio between the number of dangerous units, the number of losses, the probability and the uncertainty:

Uncertainty of loss probability of dangerous unit number

1000 10.00 10.0

10000 100.00 10.00

100000 1000.00 10.000

1000000 10000.00 10.0000

Using the principle of the law of large numbers, we can know that accidental accidents will happen with a certain probability. In other words, the law of large numbers can be eliminated by chance. Insurance also uses this feature to make accidents inevitable. Reinsurance is the insurance of insurance, and this feature has also been applied to eliminate accidental domination, so that even accidental symbols occur within the forecast range, making the operation of insurance rational and stable.

The law of large numbers in reinsurance means that the original insurer distributes all kinds of risks with different insurance amount and different dangerous nature to the reinsurer in time, limits its liability to a certain amount and balances it, and takes the greatest common divisor among many uncertainties as the retention amount. Reinsurance will be arranged if the insurance business exceeds the retention limit. According to the equilibrium principle, reinsurance is the main key to increase the total number of insured objects and reduce the average amount of insurance.

Using the law of large numbers, it is most important to get as many risks as possible in insurance practice, and the more the number, the better. There are two ways: one is to increase the number of risks directly insured; The second is to increase the number of risks borne by reinsurance. As far as the former is concerned, insurers are often limited by subjective and objective conditions, such as capital, business, region and personnel background. In this case, the insurer must make full use of the second method and accept reinsurance.

Using the law of large numbers can reduce the uncertainty of accidents. Therefore, the insurance industry can accurately predict the occurrence of danger. If you can predict it, you will certainly try to prevent or avoid it. As a result, the probability of danger is reduced, and the purpose of profit and social stability is achieved.

An important condition of the law of large numbers is that there must be a large number of similar dangerous units objectively, and the number of dangers insured by insurance companies is sufficient. Another important condition is that the insurance coverage of each dangerous unit must be equal, and each dangerous unit will face possible losses alone and will not bear cumulative responsibility. Although insurance companies use the law of large numbers in their business operations, there will still be instability due to various factors, such as not underwriting a large number of similar dangerous units, or the insurance coverage of each dangerous unit is unbalanced. Reinsurance is conducive to creating the conditions required by the law of large numbers and further dispersing risks. The law of large numbers and reinsurance are two important aspects in insurance business operation, and effectively combining them at work is conducive to promoting the stability of business operation.

Further reading: How to buy insurance, which is good, and teach you how to avoid these "pits" of insurance.