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You are a manager working for an insurance company. Your job entails processing individual claims filed by policyholders. In general, few claims are expensive. Each

  • You are a manager working for an insurance company. Your job entails processing individual claims filed by policyholders. In general, few claims are expensive. Each quarter, you compile a report summarizing key claim statistics, such as the number of claims submitted, the average cost per claim, and the total cost of submitted claims. In the last quarter's report, you notice a large difference between the mean and the median claim cost, the mean cost being much higher than the median cost.
    • Draw a conclusion as to why you might be observing this difference in the data.
    • Evaluate whether this information might be useful for determining if the claims data is normally distributed.
    • If you conclude that the data is likely normally distributed, explain why. If not, suggest another distribution that might best describe the data. Explain why this distribution would be a more accurate representation of the data.
    • Given the large difference between the two measures of central tendency, which of the two measures would you rely on in describing the average claim cost and why? Support your discussion with relevant examples, research, and rationale.

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