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 jail is 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 Frequency how many times an event occurs. Severity is how large the financial impact. Probability of someone dying whereas insurance can happen multiplies time. General insurance has quite a lot of uncertainty We 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 insurance risk 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

First one, little revenue needed for comprehensive insurance Long-tail need substantial revenue. Home and contents insurance cover 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 skewed indicates 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 distribution is 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 Distribution bell 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 failure is 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.