Risk actuarial

The value placed on efficiency and predictability, and the institutional pressures for cost-containment, accountability and measurability are enhancing the appeal of reductionist theories. They fit with the tendency to locate social problems in individual pathology. They suit the actuarial mentality that places faith in statistical information as a means to predict and minimize future risk.7 Genetic and evolutionary explanations have become a way to address the issues that trouble society - the perceived decline of the family, the problems of crime and persistent poverty, changes in the ethnic structure of the population, and the pressures on public schools. 

Voluntary insurance would be the market solution to uncertainty for risk-averse individuals. In this context, the user chooses the optimum co-insurance rate. Theory offers some analytical results on optimal health insurance contract designs.1 The consumer decides the extent of the coverage and the optimum co-insurance rate, and ultimately the price to be paid for the premium. In competitive markets, with actuarially fair premiums, the optimum co-insurance rate varies between individuals and depends on the risk of falling sick and the price elasticity of demand. 

Information on death rates from automobile or other types of accidents or activities is generally much more solid than that pertaining to most chemical risks. Statistical data, compiled by actuaries, are used to derive such risk information. There is uncertainty associated with these actuarial figures, but most are fairly reliable. Most of the risk information about various cancers, presented in Chapter 5, is of this type. 

Note that some of the risk information is actuarial (based on statistical data, typically collected and organized by insurance companies), and some of it has been derived from the type of risk assessment discussed in this book (chloroform in chlorinated drinking water, afla-toxin in peanut products). While the uncertainties associated with the figures in Table 11.2 are much greater for some risks than for others (not a trivial problem in presentation of risk data), such a presentation, it would seem, is helpful to people who are trying to acquire some understanding of extremely low probability events, of the order of one-in-one million. 

Note Risks from activities are actuarial and much more certain than those associated with chemical exposures, which are estimated using regulatory models. Risks of cancer are assumed to equate to risks of death. Lifetime risk will be about 70 times higher if risks do not change substantially from year to year. 

These risks are, for the most part, large ones, and can be measured directly, by epidemiological studies and also by the activities of actuaries, who find ways to collect statistical data on rates of accidents and other safety risks, and on how they are distributed in populations. All-in-all, the relatively few risks that are large - the major causes of... 

Many companies make substantial profits by gathering and distributing information about products and companies (Klein 1997). They bear the fixed costs of learning about the relevant basic research and then sell that knowledge to others at a lower marginal cost. The A.M. Best Company rates life insurance companies actuarial and investment practices. Moody s rates the repayment risk of debt. 

You must take into account the fact that, as you dip into your capital, the income it produces will diminish. This strategy can be a high risk. If you have a partner, the calculations are more complex, and you may want to talk to a financial expert before embarking on the actuarial strategy. 

In the Soderhamn cohort, the risk of stroke was approximately 5% per year and the overall mortality was 24.7% over a mean of three years (Terent 1990). No data were reported on cardiovascular morbidity or mortality. In the Perugia cohort, the annual risk of stroke after TIA was 2.4% (95% confidence interval [Cl] 0.7-4.7) (Ricci et al. 1998). The actuarial risk of death was 28.6% (95% Cl, 19.2-37.8) at five years and 49.5% (95% Cl,... 

Risks in patients with Hodgkin s disease The actuarial risks of developing secondary malignancies and/or myelodysplastic syndrome at 5, 10, and 15 years after treatment for Hodgkin s disease have been calculated (76). 

Other risks cannot be so easily estimated because the necessary actuarial data do not exist and frequently cannot even be collected. Many of the potential risks from exposure to chemicals are in this second category. In addition to the absence of actuarial data relating to them, these risks tend to have the following characteristics ... 

Definitions of risk in risk management and insurance literature were reviewed with the expectation that they would be helpful. In summary, they emphasize the uncertainty or the lack of predictability concerning loss. It is a fundamental actuarial concept that risk implies uncertainty. But definitions of risk based on uncertainty do not communicate entirely the nature of risk for which safety professionals give counsel. I cannot conceive of safety professionals presenting themselves as consultants in uncertainty reduction. 

Similar formulas abound, intended to produce a finite, numerical quantification of risk in money terms. When a hazard analysis is completed, the outcome may sometimes be expressed in a money number representing the value applied to the harm or damage done. In safety management, why that money number must be multiplied by a probability number to obtain a risk cost per unit of time or activity is a mystery. A review of the literature does not give adequate explanation of the soundness of such an exercise for individual risks. The concept has validity in actuarial practice when dealing with large numbers of risks. 

The actuarial premises on which the workers compensation experience rating system was developed give credibility to OSHA incident recordable and lost workday case rates as measures, and predictors, of safety performance, with these qualifications The statistical base (the hours worked) on which the records are developed has to be large enough and low probability-severe outcome risks may not be encompassed within the experience base. 

A natural gas high pressure pipeline with a diameter of 20" (508 mm), a wall thickness of 8 mm subject to a pressure of pi = 70 bar is planned in the vicinity of a residential area. For the section passing close by this residential area a risk assessment is to be performed. This is a so-caUed risk-based analysis, since the expected frequency of the undesired event (rupture of the pipeline and gas release) is directly taken from statistical material (actuarial approach) and not determined by a detailed analysis of the engineered systems involved. 

An investor acquiring a pool of mortgt es from a lender measures the amount of associated prepayment risk by using a financial model to project the level of expected future payments. Although it is impossible to evaluate with any accuracy the prepayment potential of an individual mortgage, such analysis is reasonable for a large pool of loans. This is similar to what actuaries do when they assess the future liability of an insurer that has written personal pension contracts. The level of prepayment risk for a pool of loans is lower than that for an individual mortgt e. 

Providing the models are constructed with these quahties in mind, they form an improved foundation for communicating and discussing risk compared to actuary models. The ability to communicate risk contributes to creating risk awareness within all layers of a firm, from operational staff to upper management. 

Therefore, extreme value projection may be useful in calculation probabilities to be used for risk assessment codes or total risk exposure codes based on actuarial data. Extreme value projection can also be useful in communicating hazard information to management and may aid in drawing management attention to a problem before a serious accident occurs. 

---