Expected loss
The best estimate of the average annual cost of a risk, which a fairly priced premium approximates. When a risk is retained rather than transferred, the expected loss is the first of the three components (with the reserve's opportunity cost and volatility) that make up the true cost of carrying it yourself.
Defined in 2 GAGE programs, which carry 5 distinct definitions of it. The wording above is taught in Certified AI Governance Professional (CAIGP).
How each discipline defines it
The same term does different work depending on who is using it. These are the definitions as each program teaches them, unedited.
The best estimate of the average annual cost of a risk, which a fairly priced premium approximates. When a risk is retained rather than transferred, the expected loss is the first of the three components (with the reserve's opportunity cost and volatility) that make up the true cost of carrying it yourself.
The average loss per period from a risk, computed as frequency per period times mean severity per event. An average across many repetitions, not a forecast of any particular period.
Probability of a loss event in a period multiplied by the severity if it occurs. A price computed for comparison, never a prediction of what will happen in any single year.
Probability multiplied by severity, giving the long run average cost per period. Taught in Topic 6.1 and used here as the hand calculation that verifies the model.
Frequency multiplied by severity over a stated period, taught in full in Topic 6.1. The quantity a control acts on, through one of its two terms.
Where it is taught
The exact lessons this term appears in. The first module of every program is free with a free account.
- Insuring the risk: what AI liability coverage exists, what it excludes, and what that tells you · The Money: Budgets, ROI, and Risk, Certified AI Governance Professional (CAIGP)
Terms it appears with
Not an alphabetical neighbourhood: these are the terms taught in the same lessons, ranked by how often they appear together.