5: Pricing Flashcards
What makes up a premium?
- expenses
- profits
- pure risk premium
- ROCE
Risk premium you need to consider what?
- subject matter
- exposure
- cover
- claims history
- future claims
- large losses
- rating factors
What is subject matter?
The subject insured e.g property, person etc
What is a base rate?
The standard price for an average risk
What are two main ways of sourcing a risk?
- risk survey
- proposal form
What risk characteristics do you need to do a burning cost analyis?
Lots of historical claims data
High frequency claims, low severity
What are the benefits of burning cost?
- easy to use
- as price is based on the history it could be an incentive for the insured to manage the risk properly
How do you calculate the burning cost?
Claims/ EPI= X x 100= %
What could an underwriter use to combat B.C?
- claims triangles
- subjective/sound judgement
What is a market standard of data?
- homogenous risk features
- claims codings have been allocated
- experience of 3-5 years minimum
What are the typical commission rate for intermediaries for
1) general risks
2) unusual risks
- 7.5% -25%
- 40%
What is the IPT tax for low and high
10% (soon to be 12%)
20% for high
Who is responsible to paying the IPT
The policyholder is but the insurer takes it as part of the premium and then sends it onto HMRC
Is facultative reinsurance a variable cost or fixed cost and why?
Variable as facultative reinsurance is based on individual, unique accounts
Is general reinsurance a fixed or variable cost and why?
Fixed under treaty reinsurance as this will be known and agreed over a 12 month period
