Descriptive and Probability Distribution: Insurance premiums

Provided an example of a research problem at any organization that would benefit from the use of either descriptive statisticsor probabilitydistribution statistics. How do insurance companies use descriptive statisticsand probability distributions to project health and auto insurance premiums? In regards to age, why is there an inverse relationship between the two premiums?

As an example of an organization’s use of descriptive statistics, think of an organization that is trying to decide between many job applicants. They have received hundreds of resumes and somehow have to whittle those down to a small enough number of applicants to interview. One thing they could do is look at the applicants’ grades in university. These grades are descriptive statistics – your average (mean) over several years summarizes your caliber as a student. The organization may decide that only applicants who had an average of 85% or higher will be contacted for an interview.

Insurance companies make use of averages and standard deviations (descriptive statistics), which can be depicted with probability distributions. For example, think about car insurance. The price people pay for insurance depends on how risky they are to insure: it depends on the …

The descriptive and probability distribution to examine the insurance premiums are examined.