Q&A Bank Q4.8(iii): the solution says large claims can distort the figures by their presence or absence in particular cells, we could isolate this effect by using less detailed splits of rating factors. What does this mean? Can you please give an example on this? Thanks!
Isolate isn't the best word (we shall change this for next year's material). Mitigate would be better. In other words, we can mitigate their effect by using less detailed splits... Scenario 1: Large claim for £50,000 appears in small cell (for drivers aged 91) with only two other claims, each for £215. Average claim size= £16,810, so the large claim has had a big impact. Scenario 2: Small cell is grouped with others to form a larger cell (for all drivers over 70). The cell contains the claim for £50,000 but also 10,000 claims for £100. The average claim size is just under £105 so the large claim hasn't distorted the average too much.
