An actuary at a mid-sized insurance company is examining the sales performance of the company's sales force. She has data on the average size of the policy ($ thousands) written in two consecutive years by 40 salespeople. She fits a linear model and finds the slope to be 1.10and the Upper R squared is 79.0 %. She concludes that the predictions for next year's policy size will be quite accurate. Examine the data and comment on her conclusions.

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Business

Millie

2 February, 21:55

An actuary at a mid-sized insurance company is examining the sales performance of the company's sales force. She has data on the average size of the policy ($ thousands) written in two consecutive years by 40 salespeople. She fits a linear model and finds the slope to be 1.10and the Upper R squared is 79.0 %. She concludes that the predictions for next year's policy size will be quite accurate. Examine the data and comment on her conclusions.

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Lindsay Oneal · Answer 1

It is not quite accurate

Explanation:

The first factor is the Upper R squared, which is 79.0 %.

this value should be more than 90% in order to get quite accurate, 80% is normal, and below 80% accuracy decreases notably.

It indicates that probably the linear model is not the best for this data, and it is neccesary to probe other non linear models.