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IAI Actuarial Core Principles · Business Management · Using data, company functions, people skills, influence and clear communication

A health insurer's analyst presents a bar chart of average claim cost by hospital, with the vertical axis starting at ₹48,000 rather than zero, so that a difference of ₹2,000 between two hospitals looks very large. The chart is to be used by management to choose preferred hospitals. What is the main concern?

The main concern is that the truncated vertical axis exaggerates a small ₹2,000 difference, giving a misleading impression of the hospitals' relative costs. Bar length should reflect proportion, so the axis should start at zero or the limitation should be clearly flagged to decision makers.

  1. AThe chart uses bars, which are never suitable for costs
  2. BThe truncated axis exaggerates the visual difference and may lead to a misinformed decisionCorrect
  3. CThe chart shows averages, which cannot be compared
  4. DThe chart should have been drawn in colour
  5. The axis should have been drawn in lakhs rather than rupees

Explanation

Bars encode value by length, so a non-zero baseline distorts proportions and overstates a small ₹2,000 gap. Averages can be compared, colour and units are cosmetic, and bars are acceptable for comparing categories.

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