RISK DATA Nature of risk and uncertainty Concept of insurance and risk assessment Measurement of risk
CONCEPT OF INSURANCE AND RISK ASSESSMENT Techniques for identification of risk: Ascertaining causes and consequences of events but... Events are not all equally likely do not hold the same potential cost
MEASUREMENT OF RISK Objective Judge whether the insurance premium is reasonable
QUANTITATIVE METHODS Insurance relies on accurate use of numbers The business world is becoming more and more quantitative Encouragement towards a disciplined pattern of thought
ACCURATE USE OF NUMBERS Collection of data Tabulation of data Description of data Analysis and interpretation of data Likelihood estimation Calculation of premiums Payments of insurance Arrangement of reinsurances
BUSINESS WORLD MORE AND MORE QUANTITATIVE Advent of computers Computer literacy Need for numeracy
DISCIPLINED PATTERN OF THOUGHT Study of quantitative concepts Logical approach to problem Elimination of invalid arguments
FEATURES OF RISK DATA FREQUENCY (Likelihood of risk) SEVERITY (Cost of risk)
PROFILES High frequency / low severity E.gFire losses (High level of predictability) Low frequency / high severity E.g Losses at sea (High level of uncertainty)
Figure 4.1 Right-hand end Decide on the strategy for funding the risk Take steps to be protected from the consequences Purchase some kind of insurance
Figure 4.1 Left-hand end Make reasonably accurate estimates of the cost of losses Devise some form of self-funding
DATABASES They help to Make good decisions Make accurate forecasts Improve judgement
INSURANCE DATABASES Fire Theft Accidental damage
DATABASES PROVIDE Number of variables Nature of variables (discrete / continuous) Category of variables (qualitative / quantitative)
USE OF EXISTING DATABASES (Disadvantages) Collected for some entirely different purpose Incompleteness of data Lack of control Inheritance of faults Outdated Limitations and inadequacies unknown
USE OF EXISTING DATABASES (Advantages) Less time-consuming Less expensive