Car Insurance Case

Question

Hi, I would like to know how you would approach to the case: “estimate the average car insurance cost in italy"
Which variables should it include.

The structure I can think of is:

number of incidents:
- I would start top down by calculating population,
- average number of house holds,
- the number of cars per house,
- the frequency of incidents per car multiplied by the number of cars circulating
cost of the damage:
- I would estimate the % of low, medium, high car models
- assigning an average price car per range by considering population income ranges.
- Then I would consider 3 different level of incidents: low, medium, hard
- assign them a different weight (of frequency)
- I would estimate the cost of each incident based on the car ranges
- I would weight it based on the frequency

Answer 1

Hi there,

I understood the objective slightly differently, which is average cost of the insurance premium. However, assuming we're talking about the cumulative cost of all damages from accidents, I would generally agree.

What you may want to consider though is whether there's a correlation between the price range of a car (indicative of a certain economic strata) and frequency of low, medium, and high impact accidents. If so, you might want to calculate the costs separately for the 3 groups of cars i.e. low, medium, high costs, and then add them up. This way, you can work with a matrix, which is tidier and easier to communicate than weighted averages.

Lastly, it may be worth pointing out that you do this for private passenger cars only and you're excluding everything that is

Commercial cars such as taxis, rental cars, post delivery cars, etc.
Non-passenger cars e.g. trucks or other special vehicles that could technically also be termed “cars”

Hope this helps a bit. Best of luck!

Answer 2

Hi there,

Overall good, but be careful. I think you misunderstood the question which is insurance cost…i.e. the premiums. You've gone ahead and calculated the total damages/payments!

If the question was the former, then you would have failed. Remember, the objective is always the most important!

Overall though the structure is good and you have a reasonable approach to solve this (though a bit overcomplicated)

Answer 3

I like your structure - do you have the workings of it? Would be great to see if it gets you to a reasonable answer