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