What is the main measure of the underlying risk
Exposure measure
In addition to the exposure measure, what other elements need to be considered
Risk factors
The elements of additional consideration that help define a risk
What would the risk factors be called if they were used to determine the level of premium to charge
Rating factors
e.g 1.5 = base premium * 1.5
What are 4 common rating factors used by household insurers
- Age of the policyholder
- Number of bedrooms
- Number of bathrooms
- Number of floors
What is the premium called before and after a rating factor has been considered
Before = Base premium
After = Risk-adjusted premium
Other than exposure measure and risk factors, what 3 other things need to be considered when assessing a risk
- The coverage of the policy
- External/Environmental factors
- Economic factors (e.g. inflation)
How do insurers account for changes over time when assessing historic premiums and claims
They adjust them to account for the perceived increase/decrease in overall risk present at the time to make the data more appropriate for comparison
What are 4 important attributes when assessing large volumes of data
- The minimum value within the set
- The maximum value within the set
- The spread of data
- The averages contained within
What are the 3 most common measures of average
- Arithmetic mean
- Median
- Mode
Why are averages important
They allow us to summarise large data sets and represent them by a single point.
Making them more manageable point of reference
What is the calculation for arithmetic mean
sum(values) / # of values
The typical calculation of average
What another way of saying average
A measure of central tendency
What is the median
The value exactly halfway through a list of values arranged in ascending order
Where there’s an even number of values it is the mean of the two central values
What is the mode
The value which occurs most frequently in the dataset
In what 2 circumstances would the mode be a more suitable measure than the mean or median
- Where data is dominated by outliers
- For preferences (i.e. the most popular)
In what circumstance is the median an inappropriate measure
Where valuable data is ignored by simply taking the middle value
Other than the 3 measures of average, what 4 other measures are useful when assessing a large dataset
- Maximum value
- Minimum value
- Range - Difference between largest and smallest value
- Variance - A measure of the spread of data
What does the standard deviation tell us about the data
How far the data varies around the mean
What data point would suggest a volatile claim’s experience
A high standard deviation
What is the variance also referred to as
The standard deviation squared
- What type of dataset would you expect to be more stable
- and why
- A larger dataset
- Outliers have less of an effect on the standard deviation
What is the calculation for the standard deviation
- Take the difference of each number from the mean
- Squaring these numbers
- Taking the mean of these values
- Take the square root of this number
What is the calculation for the variance
- Take the difference of each number from the mean
- Squaring these numbers
- Taking the mean of these values
When a dataset is large, what is a more time effective way of calculating averages
Calculating the average of frequency distributions
