Final answer:
The use of the law of large numbers in predicting future losses and setting premiums is part of option b 'Premium Calculation.' It ensures actuarially fair pricing and financial stability for the insurance company by accounting for claims, costs, and profits.
Step-by-step explanation:
The element of insurance that uses the law of large numbers to reduce the possibility of missing future loss predictions is Premium Calculation. By utilizing the law of large numbers, insurers can predict future losses more accurately and therefore set premiums that will cover the average person's claims, the costs of running the company, and still leave room for the insurance firm's profits. Charging the actuarially fair premium to each group separately ensures that the premiums match the average amount of benefits based on the specific risks of the group. If an insurance company were to charge the same premium to the entire group instead of pricing according to the specific risk groups, it may result in financial imbalance and potential solvency issues for the insurer.