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The foundation on which insurance is based is referred to as the law of large numbers, but it’s not really a law. No one pays a fine or goes to a gulag if it’s violated. The law of large numbers is the mathematical principle that says the more exposure units in the mix, the easier it becomes to predict a group’s losses. As the saying goes, flip a coin three times and it might come up heads all three instances. Flip it a million more, however, and the odds of an even heads-to-tails ratio becomes more likely. Poof! Insurance was born.

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