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STAT20053 Assessment 5

This document discusses the correlation between insurance premiums and claims values. A correlation analysis was performed and found: - A very strong positive correlation (0.98) between average premium and average claim, indicating they increase together. - A strong negative correlation (-0.79) between average premium and adjusted premium, showing they move in opposite directions. - A strong negative correlation (-0.82) between average claim and adjusted premium, also indicating an inverse relationship where one increases as the other decreases. The correlation coefficients provide information about the relationships between these insurance variables.

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Maria Kathreena Andrea Adeva
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259 views

STAT20053 Assessment 5

This document discusses the correlation between insurance premiums and claims values. A correlation analysis was performed and found: - A very strong positive correlation (0.98) between average premium and average claim, indicating they increase together. - A strong negative correlation (-0.79) between average premium and adjusted premium, showing they move in opposite directions. - A strong negative correlation (-0.82) between average claim and adjusted premium, also indicating an inverse relationship where one increases as the other decreases. The correlation coefficients provide information about the relationships between these insurance variables.

Uploaded by

Maria Kathreena Andrea Adeva
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Adeva, Maria Kathreena Andrea H.

BSA 2-11

STATISTICAL ANALYSIS with SOFTWARE APPLICATION


ASSESSMENT NO. 5
a. Calculate the correlation coefficient between the premiums (average premium;
adjusted premium) and claim values.

AVG. PREMIUM AVG. CLAIM ADJ. PREMIUM


AVG.
PREMIUM 1

AVG. CLAIM 0.979407252 1

ADJ.
PREMIUM -0.788848385 -0.816747823 1

b. Interpret the results of the correlation coefficients.


The correlation matrix was used to determine the correlation coefficients between
several variables related to insurance companies rate. The Correlations procedure from
Excel Data Analysis was used to calculate the statistic. The correlation between “average
premium” and “average claim” was 0.98 which indicates that these are positively
correlated. It means that they tend to move in the same upward direction as they have direct
relationship. As average premium increases, average claim increases as well. If the
insurance company charges its customers higher than it should be, average premium will
increase. In effect, average claim values will increase as well. Meanwhile, the correlation
between “average premium” and “adjusted premium” was -0.79 which indicates that they
have strong relationship as well but in a way that they were strong negative relationship.
This is an indication that they tend to move in an opposite direction. Meaning, as average
premium increases, adjusted premium decreases. If the insurance company charges its
customers higher than is should be, average premium will increase, in effect, adjusted
insurance premium will decrease. This relationship is referred to as inverse relationship.
Further, the correlation between “average claim” and “adjusted premium” was -0.82 which
has the same indication as the former. They were negatively correlated thus indicating an
inverse relationship whereas as average claim increases, adjusted insurance premium will
decrease. Also notice that the correlation coefficients along the diagonal of the table are all
equal to 1 because each variable is perfectly correlated with itself. These cells aren’t useful
for interpretation.

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