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RISK DATA

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

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RISK DATA

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  1. RISK DATA • Nature of risk and uncertainty • Concept of insurance and risk assessment • Measurement of risk

  2. 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

  3. MEASUREMENT OF RISK Objective Judge whether the insurance premium is reasonable

  4. 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

  5. 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

  6. BUSINESS WORLD MORE AND MORE QUANTITATIVE • Advent of computers • Computer literacy • Need for numeracy

  7. DISCIPLINED PATTERN OF THOUGHT • Study of quantitative concepts • Logical approach to problem • Elimination of invalid arguments

  8. FEATURES OF RISK DATA • FREQUENCY (Likelihood of risk) • SEVERITY (Cost of risk)

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

  10. 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

  11. Figure 4.1 Left-hand end • Make reasonably accurate estimates of the cost of losses • Devise some form of self-funding

  12. DATABASES They help to • Make good decisions • Make accurate forecasts • Improve judgement

  13. INSURANCE DATABASES • Fire • Theft • Accidental damage

  14. DATABASES PROVIDE • Number of variables • Nature of variables (discrete / continuous) • Category of variables (qualitative / quantitative)

  15. 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

  16. USE OF EXISTING DATABASES(Advantages) • Less time-consuming • Less expensive

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