Applying a per-occurrence limit L
Hi,
BattleWiki states "The shaded area represents the expected payment per loss because the horizontal axis is the cumulative claim count percentage. When the horizontal axis was the cumulative claim count the shaded area represented the total expected loss. Normalizing the horizontal axis to a percentage gives a per loss basis."
When the horizontal axis was the cumulative claim count, should the shaded area be total expected payment instead?
Thanks!
Comments
This is really a question of semantics. When the horizontal axis is the cumulative claim count the shaded area is the insurer's payout across all claims. When there is no limit or deductible this is the total expected loss which you could say is the total payment made by the insurer for all claims combined.
The paragraph was explicitly discussing about when there is per occurrence limit L, so without adding context of the total expected loss = total payment made by insurer when there is no limit or deductible under that explanation, adds some confusion there. Thoughts?
The key point here is when you switch the horizontal axis from being the cumulative claim count to the cumulative distribution (cumulative claim count percentage), you go from the total dollars paid out across all policies to the average dollars paid out per policy. This is true whether there is a limit and/or deductible on the policy. We've rearranged the wiki to hopefully clear this up.