Which principle states that the larger the homogeneous group, the more accurate the prediction of losses?

The Law of Large Numbers is a fundamental concept in insurance and finance that asserts that as a larger sample size is taken from a population, the average of the results obtained will converge to the expected value or the true mean of the entire population. This principle is crucial in insurance because it allows insurers to predict losses more accurately as they collect more data from a larger group of insured individuals.

When applied to title insurance, this means that with a greater number of policyholders, the insurer can better estimate the likelihood of claims being made due to title defects or other issues. The larger homogeneous group, in this context, minimizes variability and provides a more reliable basis for predicting overall losses and setting premiums accordingly. Thus, insurers rely on the Law of Large Numbers to maintain financial stability and manage risk effectively.

Other options, like the Adverse Selection Principle, focus more on the tendency of higher-risk individuals to seek insurance coverage, while the Pooling Principle pertains to the collection of risks into a larger pool to manage them effectively. Risk-Creation Theory is more about how risks emerge from specific actions or events. While related, they do not specifically address the accuracy of loss predictions in the way the Law of Large Numbers does.