What does the law of large numbers indicate regarding insurance risk?

The law of large numbers indicates that as the size of the group increases, the predictability of future losses becomes more accurate. This principle is fundamental to the insurance industry because it allows insurers to assess risk more effectively. When a larger group is considered, individual variations in losses tend to average out, resulting in a more reliable estimation of expected losses.

This predictability is essential for setting premium rates and ensuring that the insurer can adequately cover claims while remaining solvent. By pooling numerous risks, the insurer can better predict the overall losses that will occur within that group, leading to more accurate risk assessments and financial stability in the insurance market. Therefore, larger groups help translate statistical probabilities into reliable forecasts for future claims, making option B the correct answer.