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be considered a causal variable, as the more miles
a driver drives, more is the cost of insurance. Loss
costs can be divided into claim frequency and
average claim cost. Causal variables then could be
considered to be directly related to claim frequency
or average claim cost.
Automobile mileage is inversely proportional to
average claim cost. Unfortunately, however, the
categorization of variables as 'causal' or 'non-causal'
is ambiguous. E.g, for the automobile insurance,
where, when and how one drives might be more
important than the mileage.
From actuarial point of view, correlated variables
provide more accurate premiums and are thus more
desirable in a competitive market place. Eliminating
correlated non-causal variables may produce a less
accurate rating system and cause market corrections.
(ii) 'Controllability' is a desirable rating variable
characteristic.
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