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Week Five Key Concepts

Define insurability and the 3 conditions. Be able to apply these 3 conditions to test if an event is

insurable. 1). Event is fortuitous (not certain) over a given time period, we dont know when death is

likely to occur. 2). Measurability (the risk is measureable). The events financial impact or payout is

measureable.3). Does not encourage unethical or immoral practices (i.e Insurance against going into jailis obviously a bad idea).

Life insurance products: Difference between assurances (pays benefit on death), endowments (pays

benefits at the end of ones life/survival) and annuity (regular benefits if alive) products.

Applying conditional probability to survival functions and probabilities, know the notations and explain

them in words (S9x), Px, Qx, tPx, tQx, t1qx etc)

- Understand the concept of expected present value and apply it to calculate future expenses, claims,

and premiums.

Apply the principle of equivalence to determine premium payable on a product,

-Understand how changes to mortality, market returns expenses, etc. impact on premium paid on a

policy.

Week 6

Frequencyhow many times an event occurs. Severityis how large the financial impact. Probability of

someone dying whereas insurance can happen multiplies time. General insurance has quite a lot of

uncertaintyWe dont know what may happen because of insufficient data.

Do not let model output completely drive your decision. (It is a simplified version etc etc. E.g.run the

model a few times and then you find a range of loss).

General insurancerisk associated with anything which does not lead to a payout on the death of the

individual e.g. property damages that could relate to a 3rd party. Life insurance only one payment as we

only live once.Board payments.

We need insurance, it gives us some form of certainty as we pass on our risk to someone else for an

amount (premium) we have time to pursue other things. Read the Key Segments Slide(Get an idea of

what the market is like and which have a large market share and know what the products cover what

events).

Latency period of claims reporting and settlement

Timeline t=0 Buy the policy cover. T=insured events occurs and t=u you report the event t=v the event is

confirmed and assessed and t=w there is a payout. Life insurance only needs a death certificate or the

police had confirmed that you have disappeared; it is certain (death that is) whereas there are different

levels in general to assess. Workers compensation is a long-tail policy

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First one, little revenue needed for comprehensive insurance Long-tail need substantial revenue.

Home and contents insurancecover significant losses to assets. It is fortuitous.

Theft, break in probability of your house and you cannot defend. It is measureable. (To what extent is it

measurable? Market value on items that are reportable. Need evidence and confirmation of what is lost

before the company is willing to make a payout (receipt).

Excessive stops people from letting people steal etc , you are forking out xtra money etcetc.

Binominal Distributions = Poisson (look at slides)

P (X=x)in the form of a histogram. Sum of these bar heights = 1.

On the y axis : P(F9x)) and the probability x.

Right skewedindicates it has a tail.. High -> Low Probability. The rates is a parameter that you calculate

(it is small, take a compliment of the value is it is too big). Pass 7/8 courses, 1/8 fail therefore its 1.25(the compliment of it). Geometric distributionis basically the probability of how many times you have

to do something in order to see that event happen. (These are all discrete distribution)

Uniform distribution is the likelihood of the random variable taking any value within the range is the

same. You can use this to generate random variables.

Exponential Distribution (downward curve) f(x) = e-x/theater x=> 0 or 0 Therefore E(x)= theatre var(x) =

theatre^2

Normal Distributionbell curve f(x) =

Parameters are important, so you can substitute it into the formula, we need to choose appropriate

ones, if not then you have an inaccurate figure. Be careful. Biggest failureis NOT being unable to

calculate this correctly, to be so good at it that you forget to choose the right thing to calculate. E.g.

override common sense.