Study 2 - Loss Analysis and Rating

Question 1

2 Sets of Skills an underwriter must use when doing loss analysis

Answer 1

1. Quantitative Skills - an ability to analyze numbers
2. Qualitative Skills - an ability to analyze other kinds of information

Question 2

Loss Run

Answer 2

A summary or report of loss experience for a risk over a specified period of time

Question 3

Loss Runs can help underwriters by:

Answer 3

• Providing financial information such as reserves and payments that can be used to determine the profitability of a risk
• Providing other insights into a risk that are important in underwriters’ overall analysis of accounts, such as the types and size of claim the account experiences
• Determining the acceptability of the account, as well as the needed premium and other terms and conditions

Question 4

Captions normally found on a loss run:

Answer 4

• Date of Loss
• Date of Report
• Type of loss (automobile, premises liability, products liability)
• Description of loss
• Location
• Outstanding reserves
• Losses incurred
• Claims paid

Question 5

Date of Loss - what to look for

Answer 5

Did the loss occur during an unexpected time of the year? (Liability loss during the winter when a seasonal operation is closed)

Question 6

Date of Report - what to look for

Answer 6

• Patterns of late reporting
• Timely claim reporting is important to determine negligence and mitigate damages
• Late reporting could prejudice the insurer and suggest the insured may be uncooperative

Question 7

Type, description, and location of loss - what to look for

Answer 7

• Is the type of loss to be expected from this risk?
• Is there a suspicious loss?
• Are claims occurring in litigious jurisdictions?
• Frequency vs severity, is there anything out of the ordinary?

Question 8

Situations where using statistical analysis might not yield conclusive results for the UW

Answer 8

• Insufficient statistical data
• Familiarity with the industry
• Sufficient data but difficulty comparing risks
• Statistical improbability of loss that does not rule out the possibility of it
• An absence of loss yet an occurrence of some kind the underwriter should know about

Question 9

Explain how an UW combines qualitative and quantitative skills to assess the loss experience of a risk

Answer 9

• Identify patterns
  
  • are they preventable, can it be addressed with a higher deductible?
• Put numbers in context
  
  • An analysis of the loss could change the UW’s mind or reinforce they’re initial thoughts

Question 10

Incurred loss ratio

Answer 10

The ratio of incurred losses to earned premium

Question 11

Loss development factors

Answer 11

The markers or issues that will cause a change in the difference in the amount between the original estimate of the cost of a claim and the amount for which it is finally settled

Question 12

Loss triangle method

Answer 12

Groups losses by year over successive time periods to show a history of change in the amounts of all losses

Question 13

Accident year

Answer 13

Matches all losses, regardless of when they were actually reported, to the 12 month period in which they occurred

Question 14

How the loss triangle illustrates development

Answer 14

1) All reported claims that are open have the potential to develop by increasing or decreasing until they are ultimately settled
2) There is the potential for new claims that were incurred in the accident period but not reported as of the end of the valuation interval

Question 15

Pure premium

Answer 15

The premium required to match incurred losses, with no allowance for commissions, overhead, profit, or investment income