IRefer to the Regression Models file in the Week 1 folder. That file provides yo

Question

IRefer to the Regression Models file in the Week 1 folder. That file provides you with information on the regression model used to explain and predict the cost of claims for the insurance company.

Please the following questions:

1. Can this model be used for studying the cost of claim? (why?)

2. How well does model explain the cost of claim? (please indicate the percentage)

3. What variable(s) has(ve) impact on the cost of claim?

4. What type of claim is the most costly to your company? (average dollar amount)

5. Does damage caused by theft play a significant role in company's performance?

Explanation / Answer

Can this model be used for studying the cost of claim? (Why?)

Yes the model can be applied. This is a model that explains the relationship between the cost of claim and the number of the people who come for claims. The interest of the management is to reduce the numbers of people who come and claim insurance. The model therefore can be used to study the cost of claim. The management can determine the number of the people who claim insurance costs in the firm and these claims will affect the operations of the firm. The collinearity statistics and the r2 that is the cost of determination will be used to explain on the variability between the variables that the management thinks that it will affect the operations of the firm.

How well does model explain the cost of claim? (Please indicate the percentage)

The value of r is equal to: 0.728 which means that r2 =0.528. This means that 52.8% (0.528*100) of the variability between the two variables have been accounted for and the remaining 47.2% remains unaccounted by the model above. Since the model explains 52.8% of the relationship or the variability of the two variables, then the regression model adopted may or may not yield transformative informative information that the management could sufficiently use to make decisions. This will depend on the number of units in which that variable is measured and whether all the transformations have been applied.

What variable(s) has (ve) impact on the cost of claim?

The variables includes: household income, marital status, theft damages among other damages and the number of people in a house hold.

What type of claim is the most costly to your company? (Average dollar amount)

The fire damage is the most costly. This is because its beta coefficient is greater than the rest which indicates that there is greater effects on the state of the organization. Normally, when the coefficient is greater then, it will generate higher risks. Its chances of occurring is higher than the rest of the variables.

Does damage caused by theft play a significant role in company's performance?

Since the significance value for theft damage stands at 0.889, it therefore means it is greater than 0.05. This will mean that the damage caused by theft is statistically insignificant. However, this should be reported.

References

Reed SD, Anstrom KJ, Bakhai A, et al. Conducting economic evaluations alongside multinational clinical trials: toward a research consensus. Am Heart J 2005;149:434-43

Steel, R. G. D.; Torrie, J. H. (1960). Principles and Procedures of Statistics with Special Reference to the Biological Sciences.

Glantz, Stanton A.; Slinker, B. K. (1990). Primer of Applied Regression and Analysis of Variance. McGraw-Hill

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