Ch 9 Flashcards
(134 cards)
the process of extracting hidden patterns from data that is used in a wide range of applications for research and fraud detection
Data Mining
What are the two most prominent actuarial activities?
1) ratemaking 2) estimating of unpaid liabilities and adequacy of loss reserves
What must an actuary consider when making rates?
Trends that may affect claim costs during the effective period of the rates. Must look at economic and regulatory factors.
What is a statutory annual statement?
A statement of opinion, by a qualified actuary as to whether the carried reserves make a reasonable provision for the liability.
What are some secondary tasks performed by actuaries?
-analyze reinsurance needs to determine how much risk the insurer should retain versus the cost of reinsurance. -estimate future cash flows so assets are available when claims are to be paid -assessing corporate risk by testing the adequacy of surplus under potential adverse situations (catastrophe, soft pricing) -providing financial and statistical information to regulators and applicable statistical agents. (With accounting and finance) -participate in corporate planning and budgeting
How do small insurers without actuaries determine rates?
Information from advisory organizations (actual rate or statistical data)
Why are actuarial consultants used?
-used by small insurers who don’t have their own actuaries. -can supplement staff actuary knowledge with socialized expertise and ease workload leaks. -regulatory authorities sometimes require insurers to provide a consulting actuary’s opinion verifying the accuracy and reasonableness of the staff actuaries’ work.
the process insurers use to calculate insurance rates, which are a premium component
Ratemaking
What is the primary goal of ratemaking from the insured’s perspective and how does it complement underwriting’s primary goal (develop maintain profitable book of business)
Develop a rate structure that backed the insurer to compete effectively while earning a reasonable profit in its operations. The insurer’s rates must be competitive to meet underwriting goals.
What are the five ideal characteristics of rates?
-be stable -be responsive (can conflict with stability) -provide for contingencies -promote risk control -reflect differences in risk exposure.
Why should rates be stable?
-Changing rates is expensive -Drastic rate changes can cause dissatisfaction or regulatory/legislative action.
What does rates being responsive mean?
They must respond to changes in external conditions (losses and expenses)
Which contingencies should rates provide for?
Unexpected variations in losses and expenses.
How do ratemaking systems promote risk control?
Provide lower rates for policyholders who exercise sound risk control (burglar alarms, automatic sprinklers)
What would happen if rates didn’t take differences in exposure into consideration?
anti-selection: they would end up with only higher-risk insureds. People with high risk would gladly pay an average rate and people with lower risk would write with a carrier with a lower rate.
What are the three components to an insurance rate?
1) An amount needed to pay future claims and loss adjustment expenses (prospective loss costs) 2) An amount needed to pay future expenses, such as acquisition expenses, overhead and premium taxes (expense provision) 3) An amount for profit and contingencies (profit and contingency factor)
The rate per exposure unit for insurance coverage.
Rate
The price of the insurance coverage for a specified period.
Premium
A variable that approximates the loss potential of a type of insurance. (for property this is the value being insured, for product liability, sales)
Exposure base
The average amount of money an insurer must charge per exposure unit in order to be able to cover the total anticipated losses for that line of business. (sometimes includes legal costs)
Pure Premium
The amount that is included in an insurance rate to cover the insurer’s expenses and that might include loss adjustment expense but that excludes investment expenses. It covers: -Acquisition expenses -General expenses -Premium taxes -Licenses and fees -Regulatory -Advisory organizations
Expense Provision (Underwriting Expenses)
Costs incurred by an insurer for operations, taxes, fees, and the acquisition of new policies.
Underwriting expenses
The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy. (ex. cost of in-house claims adjusters)
Loss Adjustment Expenses (LAE)
The expenses an insurer incurs to investigate, defend, and settle claims that are associated with a specific claim.
Allocated Loss Adjustment expenses (ALAE)

