1. INSURANCE PREMIUMS CONTINUE TO RISE IN THE NORTHEAST COMPARED TO THE MIDWEST Why? What did our research uncover? And what’s to blame? Presented by: Andrew Kim April 20, 2011
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3. OBJECTIVE: Through extensive research, we plan to prove whether or not insurance companies are telling us the truth - that Northeasterners do live a riskier lifestyle compared to Midwesterners. RELEVANT MATERIALS: Center for Disease Control’s “Behavior Risk Factor Surveillance Survey” (2000) 2000 U.S. Census 2008 U.S. Census
4. DATA ANALYSIS: COLLECTION METHODS Using survey results from CDC, we compiled a spreadsheet of Risky Behavior %ages. Divided states into respective regions as defined by U.S. Census. This failed to account for a state’s size, so we weighed each metric (State pop./Region pop.). Not satisfied, we chose to test for poverty levels and ages (<5 & >65) using the 2008 Census. CONFIDENCE INTERVALS Using this data, we were able to calculate the differences in percentages with 95% confidence. Using Drake Direct’s Plan-Analyzer application, we calculated Confidence Intervals for all risky behavior metrics and determined whether the difference was statistically significant enough to be a determining factor in calculating insurance premiums.
9. CONFIDENCE INTERVALS: %age Differences between Northeast (Control) and Midwest (Test) (w/ 95% confidence) Smokers: (.5850, 3.0550) Overweight: (.5095, 2.9105) Sedentary Lifestyle: (1.8716, 4.7084) Leisure Time: (.2253, 2.8548) Binge Drinking: (-.2133, 1.8733) DWI: (1.0042, 1.9358) Seatbelt Use: (-1.6449, .9249) According to findings, Seatbelt Use and Binge Drinking are not statistically significant %age Differences between Northeast (Control) and Midwest (Test) (No error associated) Living below Poverty level: .37 Ages (<5 & >65): -.19 According to findings, more Midwesterners are living below poverty level. According to findings, more Northeasterners are under the age of 5 and over the age of 65
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12. GOODNESS OF FIT TEST: Using the Northeast Weighted %ages as our expected values compared to the Midwest Weighted %ages as our observed values, we conducted Goodness of Fit Chi-Squared tests to determine whether to reject or accept the following hypotheses ( for statistically significant data ). H0: Risk Behaviors for Midwest are equal to Northeast. H1: Risk Behaviors for Midwest are not equal to Northeast. TS = 14755801 1-CHIDSIT (14755801, 5) = 1 - 0.00000000000000000000 = 1 RESULT: We reject H0 which states that Risk Behaviors for Midwest are equal to Northeast. We accept H1 which states that Risk Behaviors for Midwest are not equal to Northeast. Insurance companies are wrong in assessing that those living in the Northeast engage in a “riskier” lifestyle than those living in the Midwest. Clearly, according to our data and analysis, this is not true.
13. CONCLUSION: In conclusion, we can say with close to 100% certainty that Risk Behaviors are not equal across the different regions of the United States, thereby concluding that the insurance company we investigated gave us a false statement. “ Based on our data and analysis, we assume that insurance companies are unfairly charging policy holders higher premiums in the Northeast compared to those in the Midwest.” A reason for this may be that insurance companies are using different metrics with which to measure their policy holders. They may give each risk behavior a different weight which would greatly manipulate data. They may also take into account that since there are less eligible policy-holders in the Northeast (as proved by our Age Metric research) . Without a more detailed explanation, our search ends here.