What is typically necessary for an insurer to accurately predict the probability of losses?

The accurate prediction of losses by an insurer relies on the concept of predictable frequencies. This refers to the insurer's ability to analyze past data trends regarding claims and loss occurrences to forecast future losses associated with specific policies or coverage lines. When loss frequencies are consistent and can be reliably anticipated, it aids the insurer in calculating premiums, reserving assets, and managing risk effectively.

A solid understanding of predictable frequencies also helps insurers set appropriate pricing structures to cover potential claims. This statistical approach is foundational in the insurance industry, allowing for effective risk management and assurance that enough funds will be available to cover expected claims.