Hi,
On the first question asked above by Jonathans:
Agree that the number of claims n should be the expected number of claims but since classical asks how much weight do you give to past data, should Z not be a function of expected #claims from past data?
Tailoring this to this qu: Since classical asks how much weight do you give to the £3200 (in this example this was based on 100 claims), should Z not be dependent on the fact that the £3200 was based on 100 claims?
Agree that that may not be the expected value, but in this case, could we not make the assumption that the observed number of claims is approx. expected value?
Secondly, the expected number of claims here is = 20% * 1000; where the 1000 is the number of vehicles to insure (i.e. not yet insured). Why are we basing the value of Z based on what the insurer is yet to insure?
Doing it this way would imply that we would give more weight to our past data (i.e. to the £3,200 estimate) if we were to insure a higher number of vehicles in the future, like let's say, we were to insure 2,500 vehicles, Z would be 96%, despite quality/quantity of past data not changing.
Appreciate all the help on this, thank you.