PCPA: Frequency, severity and pure premium are different targets
A count model predicts claim frequency with an exposure basis; a severity model concerns positive claim amounts; a pure-premium approach targets cost per exposure. These can connect, but their datasets and assumptions differ.
Worked example or practice scenario
For a toy segment, expected frequency is .08 claims per year and expected severity is 5,000 per claim. Their product is expected cost 400 per exposure under the relevant mean assumptions. Fitting severity only on claimants does not directly estimate the zero-claim probability.
Try this next
Write units beside every quantity. Identify how exposure, multiple claims and policy limits enter your original practice dataset. Explain whether separate frequency and severity models serve the same decision as a direct cost model.
Reading sources
ActNet editorial guide · October 1, 2026 · Original illustrative examples.