Actuaries in Wonderland (was Re: Is an inkjet print a photograph?)

[Caveman]

"Alice descended into a vast cathedral, with rows of devout worshippers, 
kneeling before a diamond ark of blinding light, and intensely murmuring 
in a low, uniform whisper: "Arate . . . arate . . . arate . . . arate . . ."
Beside the ark stood a majestic priest dressed in a white linen tunic 
and a flowing purple robe, holding aloft a silver baton, and leading the 
chant of the worshippers. "My," thought Alice, "this is indeed a 
wonderful career," and she advanced up the center aisle toward the ark.

"Young woman!" thundered the majestic priest, "Where do you think you 
are going?"

Alice stopped and stammered: "I saw a notice, Sir –"

"Have you no respect?" thundered the priest again, "How dare you 
approach the Ark of Sacred Principles?"

"Sacred Principles?" said Alice. "What are these sacred principles?"

"Do you not hear the chant of the candidates?" replied the majestic 
priest. He twirled the baton, and the murmur of the worshipers echoed 
through the cathedral: "Arate . . . arate . . . arate . . . . arate . . 
." He turned back to Alice: "They are memorizing the sacred principles."

"I have never heard of these sacred principles," said Alice. "What are 
they about?"

"Very well," said the priest. "Tell me, what is a rate?"

Alice looked puzzled. "A rate? What do you mean?"

"Clearly an unprepared candidate," said the priest. "An insurance rate. 
What is a rate?"

"That’s easy," answered Alice. "A rate is the price you pay for 
insurance. Just last week, in fact, when I had to buy auto insurance, my 
agent looked up the rate in his manual –"

"Untutored lass!" thundered the priest. "No points – no points at all!"

"No points?" asked Alice.

"No points; not even partial credit. A rate is not that at all. If it 
were so easy, we would be no better than underwriters. As every learned 
actuary knows, a rate is an estimate of the expected value of future 
costs. That is the first sacred principle."

"Now that’s silly," said Alice. "The word ‘rate’ means ‘price per unit’ 
or ‘charge per unit.’ What if this price is not an estimate of the 
expected value of future costs? You can’t just take a word and make it 
mean whatever you want it to mean."

"When we use a word," said the majestic priest, "it means just what we 
choose it to mean – neither more nor less."

"The question is," said Alice, "whether you can cause simple words to 
have such convoluted meanings when every underwriter follows the 
dictionary definition."

"The question is," corrected the priest, "who is to be master – the 
actuary or the underwriter."

Alice felt reprimanded. "Still, that’s a great deal to make a simple 
word mean," she said in a hushed tone.

"When we make a word do a lot of work like that," huffed the majestic 
priest, "we always pay it extra."

Alice gazed around the cathedral, feeling the intensity of the young 
worshippers, their eyes focused on the papers in front of them.

"Is that the only sacred principle in the ark?" asked Alice 
thoughtfully. "It seems an awfully small principle for such a large and 
expensive ark."

"That is just the first of the principles. Tell me, for what does a rate 
provide?"

This all sounded a bit absurd to Alice, but the diamond ark sparkled so 
brilliantly that she figured it might be worthwhile to try out this 
strange jargon. So she smiled and said: "A rate provides for the 
expected value of future costs."

"No, no, no points at all!" cried the priest. "The principle is: A rate 
provides for all costs associated with the transfer of risk. So try 
again, young woman, as the third sacred principle teaches us, for what 
does a rate provide?"

"OK," said Alice. "OK. A rate provides for all costs associated with the 
transfer of risk."

"No points at all, none at all!" screamed the priest, as the white linen 
tunic heaved up and down. "A rate provides for the costs associated with 
an individual risk transfer."

"Isn’t that what I just said?" asked Alice.

"Not at all," said the priest. "You recited the second sacred principle, 
but you were asked about the third sacred principle. You left out the 
word ‘individual.’ No points at all."

"You mean every time you add a word you have a new sacred principle?" 
mused Alice.

"We don’t just add words," sneered the priest. "Each word of the Sacred 
Principles is chosen after months of deliberation by the Board of 
Exalted Standards."

"Aren’t there any principles that say something meaningful?" asked 
Alice. "People are always complaining that insurance rates are too high, 
or that insurance companies discriminate among consumers. Shouldn’t the 
sacred principles say something about that?"

"Of course," came the reply. "Tell me, young lady, when is a rate 
reasonable and not excessive, inadequate, or unfairly discriminatory?"

"Now that’s a fair question," exclaimed Alice happily. "A rate is 
excessive if it is too high, it is inadequate if it is too low, it is 
unfairly discriminatory if it sets unequal prices for consumers of 
similar risk –"

"No, no, not even partial credit!" thundered the priest. "You have 
learned nothing, nothing at all, even after you have been told the first 
three sacred principles. Rather, you must say: A rate is reasonable and 
not excessive, inadequate, or unfairly discriminatory if it is an 
actuarially sound estimate of the expected value of all future costs 
associated with an individual risk transfer."

"I think I’m beginning to understand," said Alice. "First you make the 
nouns mean gibberish. Then you take the adjectives and you make them 
mean the same gibberish. How much did you have to pay these words?"

"Careful, lass," replied the stone-faced priest, as a hush fell over the 
cathedral. "You may be tried and sentenced for that by the Arbitrary 
Tribunal for Condemnation and Despair.""

Carol Lewis - "Alice's Adventures in Wonderland"

or should it be PDML....