What principle states that the accuracy of the rate is improved as the number of participants in a given arrangement increases?

The Law of Large Numbers is the principle that asserts that as the size of a sample increases, the sample's statistical properties become more representative of the overall population. In the context of insurance, this principle applies to the concept of risk assessment and premium calculation. When a larger number of participants are involved in an insurance pool, the variability of the claims can be averaged out, leading to a more accurate prediction of future claims and overall risk.

This statistical foundation allows insurers to set premiums that are more reflective of the actual risk faced by the group. The larger the pool of insured individuals, the more reliable the data on their collective behavior becomes, which minimizes the impact of any outliers or unusual claims. Consequently, with a greater number of participants, the inaccuracies that may arise from smaller samples diminish, thus enhancing the predictability of loss outcomes and improving the pricing of insurance products.