# RISK DATA  Nature of risk and uncertainty  Concept of insurance and risk assessment  Measurement of risk.

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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  are not all equally likely  do not hold the same potential cost

MEASUREMENT OF RISK Objective Judge whether the insurance premium is reasonable

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

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

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

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

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

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

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

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

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

INSURANCE DATABASES  Fire  Theft  Accidental damage

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

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 Collected for some entirely different purpose  Incompleteness of data  Lack of control  Inheritance of faults  Outdated  Limitations and inadequacies unknown

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

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