Chapter 5

The Science of Statistics

The application of statistics can be on quantitative data on any subject, it involves comparing
the distribution of some quantity for different subclasses, for example such as government
publications of birth and death rates often called vital statistics. It can also function as
singular. When the classification and interpretation of these data in accordance with
probability theory and the application of methods such as hypothesis in testing them.
A mathematical study of the theory of such distribution and tests are Descriptive Statistics or
Statistical Inference. Theory methods and practice of forming judgements about parameters
are based on random sampling. The sampling is placed within statistical tables which reflect
the values of the cumulative distribution of certain common distributions for different values
of parameters.
The probability within statistics measure or estimate the degree of confidence one may have
in the occurrence of an event, measured on a scale from (0) impossibility to (1) certainty.
The proportion of a favourable outcome are the total number of possible outcomes, thus
statistics have incorporated the mathematical theory of probability as discussed within
chapter one. Statistics gives an important insight into risk factors, often used by financial
institutions and insurance companies. There are insurance companies in Brittan that
concluded after a risk analysis, that there are a definite link between occupation and claims.
School teachers, bakers, bank officials, and local government employees, off duty police
officers, prison wardens and fire officers are seen as low risk. Students, doctors, butchers,
bookmakers, television producers, professional entertainers and all members of the armed
forces are seen as high risk and are burdened with appropriately loaded premiums. All this
data was drawn from statistical data and evaluation.
In South Africa it was found that woman are overall safer drivers than men and statistics also
showed that younger drivers have more accidents that more experienced driver. This
statistic is derived from claims. Thus premiums are calculated on this basis as well and
insurance companies would rather market intensively to the lower risk to strengthen their
asset base. We also have to keep in mind that these statistics will not remain the same since
we live within a changing world, and the human factor are just as unpredictable as nature.
Actuaries decisions appear to save their companies money, but rational, analytical and
objective factors becomes hard to identify, justify or define on which grounds, for instance, a
banker is lower risk than an accountant and which group are more accident prone than
another, except for the Law of Large Numbers.
If we look at the number of samples the statistical result that the average of samples are
independent, identically distributed random variable that tends to their common mean as it
tends to infinity. The comparative frequency of the event independently recurring tends to its
probability as it increases.
Customers take all the risk and the insurance companies never lose. Strong law of large
numbers is a precise formulation in terms of a point wise convergent sequence. There is
however another side to this law known as the weak law of large numbers.
The law refer to the various results concerned with the convergence in measure of the
sequence of averages of a sequence of random variable to their mean.
The word mean within context are the value of a variable including its probability, the sum of
which are taken over the whole range of the variable and are obtained by summing the
observed values in the sample and dividing this by their quantity. However the human factor
is far more complex in its makeup and there are certain aspects we simply cannot predict.