Question

Following is the loss data for slip-and-fall shoppers’ medical claims of the fashion designer LOLA for the years 2013–2017.

Year Number of Slip-and-Fall Claims Slip-and-Fall Losses

2013 700 $2,650,000

2014 1,000 $6,000,000

2015 700 $7,000,000

2016 900 $12,300,000

2017 1,400 $10,500,000

Calculate the severity and frequency of the losses.

Answer 1

The frequency-severity method is an actuarial method for determining the expected number of claims that an insurer will receive during a given time period and how much the average claim will cost.

Severity refers to the cost of a claim. A high-severity claim is more expensive than an average claim, and a low-severity claim is less expensive than the average claim.

Frequency refers to the number of claims an insurer anticipates will occur over a given period of time.

Remark: Folwing table has created in Excel

C1	C2	C3
Year	Number of Slip-and-Fall Claims	Slip-and-Fall Losses
2013	700	$            2,650,000.00
2014	1000	$            6,000,000.00
2015	700	$            7,000,000.00
2016	900	$          12,300,000.00
2017	1400	$          10,500,000.00
Total	4700	$          38,450,000.00

In order to calculate the severity and frequency of the losses

Frequency=(700+1000+700+900+1400)/5

=4700/5

=940

To calculate Severity is the ratio of the sum of Slip-and-Fall Losses divided by Total number of slip-and-fall claims

Severity=38450000/4700

=8180.851064