4: Statistical Data

Question 1

What is the difference between risk factor and rating factor

Answer 1

Risk measures the level of risk involved

Rate determines how much premium should be charged

Question 2

What is relative frequency good for?

Answer 2

Useful for historical experienced account due to relying on data

Question 3

What is subjective probability good for?

Answer 3

Lack of historical data or data is unreliable

Will express words used to describe the risk as risk factors

Question 4

What is a homogenous risk?

Answer 4

• a pool of risks that exhibit similar characteristics

Question 5

Limitations of statistical data

Answer 5

If the data is not enough or reliable then could create accurate results/pricing

Question 6

For what type of risks may statistical data not be good for

Answer 6

• changes in the underlying risks covered over the history of the data
• changes in uwr policy
• changes in experience over time
• changes in legislation
• accounts with low frequency but high severity as they don’t give an accurate reflection