Chapter 5 Key Points

Question 1

what is exposure measure used for

Answer 1

to determine the basic premium that the insurer wants to charge per risk

Question 2

what are risk factors

Answer 2

all the elements of additional consideration that will help define the risk

Question 3

what are rating factors

Answer 3

elements of exposure and risk factors that can be used in the process to determine the level of premium to charge

Question 4

what are the three common measures of average

Answer 4

arithmetic mean
median
mode

Question 5

what are measures of central tendency

Answer 5

averages, helps to visualise the underlying data more clearly

Question 6

how can the expected outcome of a loss event be estimated

Answer 6

looking at a combination of the frequency with which it will occur and the associated severity should it occur

Question 7

what is the stochastic model

Answer 7

can be used by underwriters to estimate the future occurrence and cost of claims associated with infrequent events

Question 8

what does the law of large numbers state

Answer 8

the actual number of events occurring will tend towards the expected number, where there are a large number of similar situations