Question

Suppose your instructor asked you to look at the influence of age (X) on automobile insurance premium rates (Y). List three variables you might control for in your regression analysis and why you would control for them (that is, what effect would these control variables have on insurance rates?).

Answer 1

,

Where , = Constant

m_0,m_1,m_2,m₃ are regression co-efficients.

X,P,Q,R are independant Variables.

y is a dependent variable.

• P =  (How much the car is used in terms of miles) If you use your car to move longer distances, you drive more, and the likelihood of meeting an accident is higher and will make you pay more premiums. Whereas if you drive occasionally or drive for a shorter distance, you will pay less.
• Q = (Location You live) In some places like Urban or metropolitan areas, chances of accidents and thefts are higher, so you will have to pay more.
• R = (Your Driving History) If your recent history shows you have a terrible record, that is, if you have been in multiple road accidents and charged with reckless driving often, then the insurance company will charge you more. But the ones with the better record will pay less.