Which term describes the practice of insuring many small claims in aggregate, often leading to higher costs?

Which term describes the practice of insuring many small claims in aggregate, often leading to higher costs?

• A. Dollar cost averaging
• B. Stair-stepping
• C. Dollar trading
• D. Claim costs offset

Answer: (C)

The main idea here is how costs behave when risk is spread across many small claims. When you insure a large number of small losses, the insurer racks up a lot of fixed, per-claim expenses—adjusting, processing, reporting, and settling each claim. Those fixed costs don’t shrink just because each loss is small; multiply them by many claims and the total cost can rise sharply. So the practice of transferring risk through numerous small claims, rather than a few large ones, is described by the term in question. It captures the idea that aggregating many small claims tends to drive up total costs because each claim carries its own administrative and handling overhead, offsetting any efficiency you might expect from diversification. The other terms don’t fit this concept as precisely: they refer to investment timing, stepwise changes, or offsetting costs, none of which specifically describe the aggregation of many small claims into a higher overall cost.

The main idea here is how costs behave when risk is spread across many small claims. When you insure a large number of small losses, the insurer racks up a lot of fixed, per-claim expenses—adjusting, processing, reporting, and settling each claim. Those fixed costs don’t shrink just because each loss is small; multiply them by many claims and the total cost can rise sharply. So the practice of transferring risk through numerous small claims, rather than a few large ones, is described by the term in question. It captures the idea that aggregating many small claims tends to drive up total costs because each claim carries its own administrative and handling overhead, offsetting any efficiency you might expect from diversification. The other terms don’t fit this concept as precisely: they refer to investment timing, stepwise changes, or offsetting costs, none of which specifically describe the aggregation of many small claims into a higher overall cost.