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

An actuary at a general insurer in Delhi finds that the average motor claim in the latest quarter rose from Rs 40,000 to Rs 52,000. A single fraud-related claim of Rs 90 lakh was included. The other 499 claims averaged Rs 34,000. The claims director wants a single headline figure for the board on underlying severity. Which statement is the most appropriate?

The actuary should report both the Rs 52,000 average and the Rs 34,000 average excluding the single large claim, identifying that claim and explaining it drives the rise. This is transparent about the real cost and also shows underlying severity.

  1. AReport Rs 52,000 only, since all claims are real costs and should not be separated
  2. BReport Rs 34,000 only and omit the large claim from the paper entirely
  3. CReport the average of Rs 40,000 as the unchanged position
  4. DReport Rs 52,000 and Rs 34,000 with the large claim identified, explaining that the rise is driven by one claimCorrect
  5. Report the median as Rs 90 lakh because it is the largest value

Explanation

Check: (499 x 34,000 + 9,000,000)/500 = (16,966,000 + 9,000,000)/500 = 51,932, about Rs 52,000. The outlier drives the rise, so the board should see both figures with the cause explained. Omitting the claim hides a real cost; the median is not the maximum.

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