Chapter 5 - ACTSC 363 C hapter 5 I ntermediate Topics 5.1 Individual Risk Rating Plans Insurers often make adjustments to filed rates(filed with

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ACTSC 363 Chapter 5 Intermediate Topics 5.1 Individual Risk Rating Plans Insurers often make adjustments to “filed” rates (filed with state regulator), which are used to determine the price for all customers falling into the specific classification Experience Rating - using a risk’s past loss experience to modify the class rate. To the extent that the experience of the insured is credible, there will be a surcharge or discount form the class rate Scheduling Rating - uses sets of subjective criteria to debit or credit the class rate. Each criterion have limits and there maybe also be an overall limit on the discounts or surcharges. - Criteria varies with insurance coverage and may include company safety programs, existence of risk management department or general managerial attitude Retrospective Experience Rating - done at the end of the policy exposure period includes: PH dividend plans (fixed or sliding scale dividend plan) and retrospective rating plans - at the beginning of the year, the PH pays a deposit prem - at the end of the year: Actual Pure Prem = Z(actual experience) + (1-Z)(pooled rate or manual rate) Z= credibility factor - responsive formula; will use more than 1 yr worth of experience to smooth out bumps. - PH is truly a risk-sharer w/ the insurance company. PH is buying an excess of loss type of rein rather than 1 st all-coverage - PH pays early dollars of claims; insurer pays abnormal claims PH is true risk sharing with insurance company. Insurer will want to ensure stability in claims record in PH (high freq, low severity) - Place caps on variation from the manual rate (minimum usually at least recovers initial expenses) - Under other dividend plans, the dividend to each PH may be based on a sliding scale using the loss ratio - What happens to claims that have been around for 5, 6, or 7 years? o Agree to sun-set clause: insurer’s expert and company’s expert to settle on a best estimate of the unsettled portion of the claim 5.2 Increased Limits Factors - Increased limit factor would rep the added cost to the insurance company for covering the indemnity portion of each loss to a higher limit - Complicating factors in calc ILF o Cannot use data from policies written at limits below the limit for which ILF is being calculated.
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o Loss DF are generally larger as limit increases o Trend factors generally increase as the limit increases o The “RISK” to insurer in writing higher limits generally increase at a faster rate than the expected losses increase o Some expenses are fixed and others vary with prem 5.2.1 Data Considerations Can only use data on a comparable lower policy limit to price a policy of a higher limit b/c:
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This note was uploaded on 02/02/2010 for the course ACTSC 363 taught by Professor Robertbrown during the Spring '09 term at Waterloo.

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Chapter 5 - ACTSC 363 C hapter 5 I ntermediate Topics 5.1 Individual Risk Rating Plans Insurers often make adjustments to filed rates(filed with

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