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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HOW APPLIED MATHEMATICS HELPS TO SOLVE PROBLEMS IN THE INSURANCE SECTOR Mathematics knowledge and skills are used in almost all fields, and one of these is the insurance sector. 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 industry, there are a number of decisions whose outcome is unknown. Statistical methods of applied mathematics are used at arriving at these decisions (Green, 95). Decisions are usually made by assigning each of the outcomes a possible quantitative expression, and these outcomes are analyzed using statistical methods. 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 comes mathematical modeling (Green, 98). Insurance firms want to understand the effect of various variables. This helps the management to come up with the best decisions based on such analysis. Mathematical modeling is thus important when making such analysis. A mathematical model is simply a framework that allows for data to be organized in such a way that the effect of changing one or more variables is determined. This helps the company make consistent and well informed decisions. This type of modeling is based on mathematical formulae in which the variables are inserted.
Mathematics is an important subject in the field of insurance. It helps in understanding and solving problems related to this industry. The use of mathematical formulae and models allows for various situations to be analyzed, and this allows for making of informed decisions.
Works Cited
Greene, Mark R. Application of Mathematics to Insurance and Risk Management. The Journal of Insurance 28.1 (1961): 93-104. Web Read More
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