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How does the applied math relate with the insurance field - Assignment Example

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Applied mathematics is used to address a number of problems related to the insurance sector, and this makes the study of mathematics very important.
First, in the insurance…
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How does the applied math relate with the insurance field
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Download file to see previous pages For example, when buying or selling an insurance policy, it is important for the two parties to understand the risks involved. These risks are analyzed, and their impact evaluated. This helps in determining the actual amount of the policy and the terms of payment.
Secondly, mathematical techniques are used in analyzing utility curves. These curves are useful in determining how much a consumer is going to buy insurance for (Green, 96). In normal cases, the insuring firm has to charge the customer a fee more than the value of the risk. The utility curves thus help the insurance company determine the exact amount the customer is going to pay for the insurance. For example, if a consumer’s average loss per year for repairing his car is $10000, then the insurance company has to charge a fee above this figure for the insurance. This can only be achieved if mathematical techniques are used so as to calculate the actual profit percentage that the insurance company will charge.
Thirdly, the insurance sector heavily relies on market research in the development of the various policies and understanding of the existing ones (Green, 97). Market research helps the insurance firms understand the best policies that will satisfy the demands of the market. For example, a company might want to study the market potential before developing a new insurance policy. In order to avoid losses, the company needs to have accurate information about the market. Mathematics is heavily applied in market research. For instance, random sampling can be employed by the insurance firms to understand various phenomenons in the market. In order to effectively collect, organize and analyze such data, mathematical techniques are required for accuracy. In particular, statistical methods are used in marketing research where variables such as standard deviation and variance help in the analysis of the collected data.
Finally, applied mathematics is useful when it ...Download file to see next pagesRead More
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