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The Insurance Times

Many insured population have a coefficient of variation
of 1.0. The basic difficulty in computing efficiency is
determining the variability of the insured population.
Because costs depend upon fortuitous events, the
variability is unknown. It is possible to apply concepts
of risk theory, however, to develop some plausible
estimates.

b) Variation in claim frequency - Let us consider a
simplified model that uses only claim counts .We assume
that frequency varies within the insured population
according to a variable . Without loss of generalization,
we assume that the variance of  is , the structure
variance. We also assume that the average frequency
for the entire population is .

From the fundamental theorem of conditional
probabilities, the total population variance of the claim
counts would be :

Var (N) = E[Var(N /)] + VarE(N / )

For any given insured, the mean frequency will be . If

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