One notes that severity estimates the expected value of the individual loss random variable, and sometimes severity refers to that expected value when there is no chance for confusion.
Since the amount of an insured loss normally is expressed in dollars (or other currency), the severity normally is expressed as an average dollar amount per loss. A notable exception appears in some forms of Disability Insurance in which the average length of the period of disability can express the severity.
Severity and losses that enter into the computation of severity are the principal topics of this book; severity, like frequency, is an extremely important measure in placing a value on an insurance contract. Almost without exception the terms of the insurance contract have a determining effect on severity. For example, if Automobile Liability Insurance limits