P/C RATEMAKING AND LOSS RESERVING RL Brown &L.R. gottlieb CHAPTER 4: RATEMAKING I. Introduction; Il. objectives; Data for Ratemaking; IV Premium Data V. Exposure Units; VI. The Expected Effective Period; VIl. Ingredients Vl. Rate Changes
P/C RATEMAKING AND LOSS RESERVING R.L. Brown & L.R. Gottlieb CHAPTER 4: RATEMAKING I. Introduction; II. Objectives; III. Data for Ratemaking; IV. Premium Data; V. Exposure Units; VI. The Expected Effective Period; VII. Ingredients; VIII. Rate Changes
Introduction a Objectives I. Introduction: Methods are applicable outside of PEc (e. g. health) . objectives: A. Essential objectives 1. Cover expected losses and expenses a. include investment income b. no inter-cohort subsidies c. no subsidies across risk classes d. must cover to last dollar paid out(several years later) e. selling at a loss is o. k, but subsidy should come from L.C. owners equity
2 Introduction & Objectives A. Essential Objectives 1. Cover expected losses and expenses a. include investment income b. no inter-cohort subsidies c. no subsidies across risk classes d. must cover to last dollar paid out (several years later) e. selling at a loss is O.K., but subsidy should come from I.C. owner’s equity I. Introduction: Methods are applicable outside of P&C (e.g. health) II. Objectives:
A. Essential Objectives 2. Produce rates that make adequate provision for contingencies a. The 100-year flood will happen. b. Tough to push rates up as industry is competitive and ph can often self-insure C. Inadequate rates endanger I C solvency
3 2. Produce rates that make adequate provision for contingencies a. The 100-year flood will happen! b. Tough to push rates up as industry is competitive and ph can often self-insure c. Inadequate rates endanger I.C. solvency A. Essential Objectives
A. Essential Objectives 3. Encourage loss control a. get ph to reduce claim freq severity or both b. methods used 1. good driver discounts 2. discounts for sprinklers, burg lar alarms 3. discounts for accident prevention and rehab in Wc c. leads to lower rates d. good for society
4 3. Encourage loss control a. get ph to reduce claim freq., severity or both b. methods used 1. good driver discounts 2. discounts for sprinklers, burglar alarms 3. discounts for accident prevention and rehab in W.C. c. leads to lower rates d. good for society A. Essential Objectives
A. Essential Objectives 4. Satisfy rate regulators a. rates must be adequate, not excessive and not unfairly discriminatory Too big to ignore: the impact of obesity on mortality trends Does it matter where you live? ICcB case b. some methods that are actuarially acceptable may be refused(e. g. use of age, gender and marital status as rating variables)
5 4. Satisfy rate regulators a. rates must be adequate, not excessive and not unfairly discriminatory ◼ Too big to ignore: the impact of obesity on mortality trends ◼ Does it matter where you live? ICCB Case b. some methods that are actuarially acceptable may be refused (e.g., use of age, gender and marital status as rating variables) A. Essential Objectives