Actuarial & Insurance
Intermediate

Pure Premium

Expected claim cost per policy: frequency times severity.

Formula

PP=f×SPP = f \times S

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Variables

PPPure premium
fClaim frequency
SAverage claim severity

Example

f=0.05, S=$8000: PP = $400

Did You Know?

The pure premium is the bare cost of risk — insurers add loadings for expenses and profit on top.

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