
PROBABILITY
LOW
BELOW
MEDIUM
ABOVE
MEDIUM
HIGH
AMOUNT OF CLAIMS (JUST NOTE DIFFERENCE)
1
0
The science of insurance and the notion of technical risk 213
Figure 10.2 shows the results of a Monte Carlo simulation of a low, medium, and high
number of claims and their probability. Whether we talk of life, non-life, third sector
insurance, or any other class, a basic principle in insurability is that all risk classes
must be diversified. If they cannot be diversified, then they tend to go into the
catastrophe category like earthquakes, which are an example of low frequency/high
impact risk.
10.3 Definition of risk factors and their aftermath
Risk factors enter into ...