RISK DATA Nature of risk and uncertainty v

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RISK DATA Nature of risk and uncertainty v Concept of insurance and risk assessment

RISK DATA Nature of risk and uncertainty v Concept of insurance and risk assessment v Measurement of risk v

CONCEPT OF INSURANCE AND RISK ASSESSMENT Techniques for identification of risk: Ascertaining causes and

CONCEPT OF INSURANCE AND RISK ASSESSMENT Techniques for identification of risk: Ascertaining causes and consequences of events but. . . Events Ø are not all equally likely Ø do not hold the same potential cost

MEASUREMENT OF RISK Objective Judge whether the insurance premium is reasonable

MEASUREMENT OF RISK Objective Judge whether the insurance premium is reasonable

QUANTITATIVE METHODS v v v Insurance relies on accurate use of numbers The business

QUANTITATIVE METHODS v v v 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 v Collection of data v Tabulation of data v Description

ACCURATE USE OF NUMBERS v Collection of data v Tabulation of data v Description of data v Analysis and interpretation of data v Likelihood estimation v Calculation of premiums v Payments of insurance v Arrangement of reinsurances

BUSINESS WORLD MORE AND MORE QUANTITATIVE Advent of computers v Computer literacy v Need

BUSINESS WORLD MORE AND MORE QUANTITATIVE Advent of computers v Computer literacy v Need for numeracy v

DISCIPLINED PATTERN OF THOUGHT Study of quantitative concepts v Logical approach to problem v

DISCIPLINED PATTERN OF THOUGHT Study of quantitative concepts v Logical approach to problem v Elimination of invalid arguments v

FEATURES OF RISK DATA v FREQUENCY (Likelihood of risk) v SEVERITY (Cost of risk)

FEATURES OF RISK DATA v FREQUENCY (Likelihood of risk) v SEVERITY (Cost of risk)

PROFILES v High frequency / low severity E. g Fire losses (High level of

PROFILES v High frequency / low severity E. g Fire losses (High level of predictability) v Low frequency / high severity E. g Losses at sea (High level of uncertainty)

Figure 4. 1 Right-hand end v v v Decide on the strategy for funding

Figure 4. 1 Right-hand end v v v 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 v v Make reasonably accurate estimates of the cost

Figure 4. 1 Left-hand end v v Make reasonably accurate estimates of the cost of losses Devise some form of self-funding

DATABASES They help to v v v Make good decisions Make accurate forecasts Improve

DATABASES They help to v v v Make good decisions Make accurate forecasts Improve judgement

INSURANCE DATABASES v v v Fire Theft Accidental damage

INSURANCE DATABASES v v v Fire Theft Accidental damage

DATABASES PROVIDE v Number of variables v Nature of variables (discrete / continuous) v

DATABASES PROVIDE v Number of variables v Nature of variables (discrete / continuous) v Category of variables (qualitative / quantitative)

USE OF EXISTING DATABASES (Disadvantages) v Collected for some entirely different purpose v Incompleteness

USE OF EXISTING DATABASES (Disadvantages) v Collected for some entirely different purpose v Incompleteness of data v Lack of control v Inheritance of faults v Outdated v Limitations and inadequacies unknown

USE OF EXISTING DATABASES (Advantages) v Less time-consuming v Less expensive

USE OF EXISTING DATABASES (Advantages) v Less time-consuming v Less expensive

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