Chapter 5 Questions Flashcards
give two reasons why it is important that an underwriter understands the main numerical methods used to measure risks and relationships
decide on whether or not to accept proposed risks
analyse and monitor the ongoing performance of the accepted business
three important features of the mean
incorporates all the underlying values
value can be easily distorted by outliers
value an become meaningless in data where only a whole number is possible
under what circumstances may the mode be a more suitable measure than the mean or the median
situations where data is dominated by either very small or very large values
under what circumstances might it be reasonable for an underwriter to use a subjective method for deriving probabilities
no historic data is available
available historic data is unreliable
briefly describe how an underwriter can make use of a stochastic model
determine the level of risk associated with infrequent events
what is the difference between a rating factor and a risk factor
risk factor: variable that affect the underlying level of risk associated with an insurable event
rating factor: variable that is directly used to determine the level of premium charged
what does a poisson distribution measure
probability of a certain number of events occurring within a given time frame
why might it be unwise for an underwriter to look solely at the historical claims record for private motor claims
new types of claims may arise in the future
In this method of establishing probabilities, the underwriter describes the risk of loss in terms of probable, neutral, or improbable, and then allocates a value to these. This method is based on
subjective probabilities
