Extended warranty

Document description

These notes approach the problem of projecting claims with data as provided in table 1. While the data provided retains the shape of the original, it has been transformed so that neither frequency nor average cost are representative of actual absolute values. In tackling this forecasting problem we could either project the value of claims or make separate forecasts of numbers and their average cost. In table 4 the claims have increased by 19% in the last twelve months compared with an increase in RPI over the same period of only 5%. Superimposed on inflation is an increase in the severity of claims which would be expected as appliances age. However, it is possible that some of the increase in claims frequency expected over the duration of the policy might arise from an increased number of minor claims so that the average cost of claims could fall at some stage. It is therefore proposed that each component of ultimate cost be considered separately and these notes are restricted to numbers of claims.