Average severities projection method uses various claim count and average cost per claim date on either a paid or insured basis.
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The average severities projection method is a technique used by insurance companies and risk managers to estimate the future cost of claims based on historical data. The method involves using various claim counts and average costs per claim, either on a paid or an insured basis, to project the total expected costs of future claims.
To apply this method, the historical claims data is first analyzed to determine the average cost per claim, which is the total amount of money paid out by the insurance company divided by the number of claims. This average cost per claim is then multiplied by the projected number of claims to estimate the total expected cost of future claims.
The projection can be done on either a paid basis or an insured basis. Paid basis projection is based on the amount of money that has already been paid out for claims, while the insured basis projection is based on the total amount of money that the insurer expects to pay out for the claims.
In summary, the average severities projection method is a common technique used by insurance companies and risk managers to forecast future claim costs based on historical data. The method involves analyzing historical claims data to determine the average cost per claim, and projecting future claim costs using the average cost per claim and the projected number of claims, on either a paid or insured basis.