Question

An insurance company estimates its objective risk for 10,000 exposures to be 10 percent. Assuming the probability of loss remains the same, what would happen to the objective risk if the number of exposures were to increase to 1 million? A) It would decrease to 1 percent. B) It would decrease to 5 percent. C) It would remain the same. D) It would increase to 20 percent.

Answer 1

Answer:

A) It would decrease to 1 percent.

Explanation:

Given that:

Objective risk for 10,000 exposures = 10%

The objective risk could be explained to mean the actual loss incurred within a given period. The objective risk also decreases as the sample increases, in this case as the number of exposure increases, the exposure risk decreases.

In th question above, with an exposure value of 10,000; objective risk is 10%

When the exposure increases to 1,000,000

(10,000 / 1,000,000) * 100%

0.01 * 100%

= 1%