What are the two ways in which firms compete:

8 A company owns and operates a fleet of cruise ships. Outline: (a) four key types of general insurance products that the company may wish to purchase in relation to the running of its ships, and (b) the perils that are likely to be covered by each of these products. [12] 9 The Marketing Manager of a personal lines insurance company wants to understand how the difference between the premium offered at renewal and the premium paid last year affects the probability of renewal. She has taken all policies invited to renew over a four week period and divided them into ten groups according to the size of their renewal premium. She has found that the proportion of policies that renew increases with the size of renewal premium. (i) Assess the suitability of the Marketing Manager's analysis. [6] (ii) Describe a statistical approach that may be used to answer the Marketing Manager's query. [6] (ili) State the main uses of policy and claims data by a general insurance company, other than for marketing investigations. [3] [Total 15] 10 () Describe the considerations required when splitting data into risk cells for the purpose of determining the pure risk premium. [5] A general insurance company that writes personal lines motor and household business currently uses four rating areas."The four areas correspond to divisions of the country into: inner cities, city suburbs, towns or villages, rural. The Pricing Manager wants to increase the number of rating areas to 50 by dividing the country according to population density. The same 50 rating areas are to be used for both household and motor business. (ii) Discuss the Pricing Manager's suggestion. [10] The Pricing Manager intends to use spatial smoothing when creating the 50 new rating areas. (ili) Describe the two main forms of spatial smoothing that are typically used. [7]