Insurance relies on the Law of Large Numbers to reduce the speculative element of insurance. The Law of Large Numbers is a fundamental principle in probability and statistics that states that as the number of events (in this case, insurance policies) increases, the actual results will more closely approximate the expected results.
In the context of insurance, this means that insurance companies can predict, with a reasonable degree of accuracy, the frequency and magnitude of potential claims across a large pool of policyholders. By spreading the risk over a diverse group of insured individuals, the company can minimize the impact of unexpected or rare events and provide stable and predictable coverage to their policyholders.
Selling as many policies as possible (Option 1) may help the insurance company increase its customer base, but it doesn't directly reduce the speculative element of insurance. Option 2 (younger people buying larger policies) and Option 3 (people forgetting that they have coverage) are not directly related to reducing the speculative element either. The Law of Large Numbers is the key statistical principle that underpins the stability and predictability of insurance.