Insurance companies set premiums based on a statistical probability. True or false?

Understand the Problem

The question is asking whether the statement about insurance companies setting premiums based on statistical probability is true or false.

More Information

Insurance companies use statistical probability to assess risk levels and set premiums accordingly. The process involves actuaries who use these statistics to calculate the likelihood of future claims and adjust premiums to balance risk and profitability.

Tips

Confusing the term 'statistical probability' with other unrelated financial metrics in insurance can lead to misunderstandings.

Sources

• Insurance Glossary - Insurance Premium - usnews.com
• How are insurance premiums set - Sovereign Insurance - sovereigninsurance.ca
• Applications of Expected Utility Theory - Insurance - EconPort - econport.org