A Study in Credibility Betterment Through Exclusion of the Largest Claims

It is often found even today in Europe that for certain statistical investigations the conclusion is drawn that the extent of the available statistical data is not sufficient. Going to the root of this pretention, however, we notice that there is a want of clear conception about the extent that is in fact necessary in order that a valid conclusion may with greater probability be arrived at. This, for instance, is the case when obvious tariff reductions are shirked from by entrenching oneself behind the law of large numbers, which by its very nature can in actual practice be never accomplished in its inherent sense.Apart from a proper understanding of the limits within which a set of statistical data may subject to certain assumptions be ascribed full measure of credence, there is further a lack of the necessary tools that would permit, on the basis of ascertainable values alone, far-reaching conclusions to be drawn or a maximum of useful information to be gathered from an investigation of which the scope is evidently not sufficient.Credibility Theory, of which Prof. Mowbray [4] may be regarded as the initiator, was evolved in the U.S.A. about 50 years ago to fill this lacunae. The development of Credibility Theory may be considered as one of the most significant contributions of American actuarial science, and it is frankly astonishing that apart from certain specific realisations in the collective risk theory which are fairly closely related to Credibility Theory, it is only in recent years that this interesting topic has met with the required attention in Europe.