Auto Insurance Essay

1. INTRODUCTION
1.1 Background of study
Individuals always being exposed to several type of risks in their daily lives and activities in order to fulfill their schedule every day. Eventually, they are enduring themselves with the consequences of misfortune which are normally inevitable. This had leaded individuals to face different types and nature of losses. Realizing that the facts that all forms of loss cannot be made good, thus, the most possible way to reduce the risk is through the purchase of insurance.
Insurance is a process of pooling of risk of the participants and policyholders. Basically, the losses suffered by the participants is spread to and borne to many. The primary function of insurance is to act as a risk mechanism. Through

Regarding Insurance and Takaful Handbook which is published by Institute Bank-Bank Malaysia, motor insurance in Malaysia is regulated by Road Transport Act 1987. The Act provide that every motorist must insure, with an authorized insurer, any liability which he may incur in respect of the death of or bodily injury to a third party caused by arising out of the use of the motor vehicle or land implemented drawn thereby on a road. In the Malaysian market, there are three types of Auto Insurance Coverage which are Third Party Cover, Fire and Theft Cover, also Comprehensive

Thus, an actuary must build the best fit model to estimate the loss that the insurance company has to recompense to their client. Regarding to (Lamm-Tennant & Starks, 1992) the accuracy of estimates of future loss costs plays a fundamental role in determining the underwriting profits of property-liability insurers. On top of that, this process is actually could avoid adverse selection which mean the policyholders have an advantages of the policy and pay premium with lower price for the greater risk that the insurer insured. Also, this process will prevent insurance company to set up an overestimate premiums that policy holder should pay. Therefore, the best fit model of amount of loss that will be proposed would reduce the biasness towards losses of both