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Companies using descriptive statistics and probability distributions

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How do insurance companies use descriptive statistics and probability distributions to project health and auto insurance premiums? In regards to age, why is there an inverse relationship between the two premiums?

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The insurance companies charge insurance premium based on the risk they are taking. The actuary statisticians collect data for a large sample for a long period of time (longitudinal data) and establish the insurance premium. Insurance premiums are fixed such that the expected value of risk is equal to the ...

Solution Summary

The solution explains why companies charge insurance premium. The expert discusses descriptive stats and the probability distribution helps establishing the premiums.