Theory Of Probability
What Does Theory Of Probability Mean?
The theory of probability, also known as probability theory or theoretical probability, is a statistical method used to predict the likelihood of future outcomes. Insurance companies use this method as a basis for crafting policies and determining premium rates.
Insuranceopedia Explains Theory Of Probability
The theory of probability seeks to identify patterns in the occurrence of various types of events using mathematical or statistical methods.
Insurance companies apply this approach to draft and price policies. For example, health insurance policies for smokers are typically more expensive than those for non-smokers. Statistical data shows a stronger correlation between smoking habits and a range of health risks. Insuring a smoker presents a higher financial risk due to the increased likelihood of serious illness and, consequently, the higher probability of filing a claim.
