Chapter 20: Further considerations when rating

Question 1

Requirements of rating factors:

Answer 1

• Define the risk clearly
• Do not correlate too closely with other rating factors
• Are practical to obtain and record
• Are objective
• Are verifiable and preferably factual
• Are acceptable to the policyholder
• Are non-manipulable
• Are acceptable to the market
• Are allowed by the regulator

Question 2

Reasons the premium charged will doffer from the office premium:

Answer 2

• To meet business objectives, e.g. to increase market share
• To maintain market share in highly competitive markets or in certain market conditions
• If it is difficult to establish the technical premium
• If insurers can charge certain loyal customers more (inertia pricing)
• If the market doesn’t accept different premiums (e.g. between new business and renewal premiums)
• Where no-claims discounts apply

Question 3

Other practical considerations affecting premium rates:

Answer 3

• Capital availability
• Reinsurance capacity
• Sophistication of sales and quotes systems
• Regulations
• Relationship with sellers
• The method of sale