Define economies of scale.

(i) Outline the five modules of a catastrophe model. [8] The country of Tectonia is prone to earthquakes. Its goverment periodically publishes maps, which classify different areas of Tectonia by intensity of earthquake risk. In the most recent publication, the government revised its classifications as follows: Previous classification New classification system system Areas covered Out of the fifteen The remaining seven counties, only eight counties have been added counties are covered. to the maps. The rest of the country is Now the whole country is not mapped. mapped. Number of Three levels of intensity The number of levels of classification levels of - no risk, low risk or intensity have been intensity of risk high risk increased from three to five. As a result, some areas have a higher numerical intensity level than under the previous classification system, but no area has a lower numerical intensity level. A general insurance company operating in Tectonia has been maintaining a catastrophe model for a number of years. (ii) Assess how the revised information published by the government would affect the insurance company's model. (3] (iii) Outline the approaches the insurance company would use to update its model