Chapter 8 Flashcards
(15 cards)
What does the process involve when actuaries perform ratemaking?
Analyzing statistics on the frequency and severity of past claims
Estimating the ultimate cost of settling currently oustanding claims
Using information that has been analyzed to estimate cost of claims which will occur in the future (trending)
What major components of any rate are composed of?
Anticipated cost of settling claims
Acquisition costs of the business- commission, marketing, other related costs
Costs of administering process
What is forecasting?
The process is merely an estimate
Pricing the product
Events in political, economical, social and technological, and environmental may affect claim cost
What is retrospective rating plan?
Based on insureds actual loss experience during policy term
What is rating?
The process by which underwriters apply the information developed by the actuaries to the risk information which has been gathered in order to establish a premium for a specific risk
What are the two approaches to rating?
Class rating
Schedule rating
Explain class rating
-Statistics gathered on a large number of risks that share common characteristics
-The record of losses for the period under review can be subdivided into territories, type of unit insured, value of the unit insured, and other relevant characteristics
-The rates developed by the class rating method are applicable to broad groups of risks
-Class rating eliminates much of the judgement that is needed to price a risk and streamlines the policy issuing process thus resulting in the reduction of production costs
Explain schedule rating
-Used when the body of statistical data is too fragmented to permit class rating
-Rates are based on a schedule or manual which lists a multitude of characteristics, which over a period of decades, have been identified by underwriters as important factors in measuring the degree of risk
-The process involves the fixing of a base rate or key rate
-Some of the applicable factors include: occupancy, wall construction, floor construction, height of building, wiring system, heating system
When practicing rating, underwriters must take into consideration
Insufficient statistical data
Familiarity with the industry
Sufficient data but difficult in comparing risks
Statistical improbability of loss that does not rule its possibility
Underwriter looks beyond loss record
How does AI and Advance Data Analytics work in ratemaking and rating?
Allows insurers:
Faster data-driven decisions
Streamline operations
Improve the accuracy of pricing model
Why can insurers not charge whatever premium they want?
(Hint 2 reasons)
Effects of competition in the marketplace
Effects of government pressure
Explain the effects of catastrophes on pressures about insurance rates
Court decisions in US ignored policy contractual conditions in order to provide relief for unfortunate consumers
Consideration must be then given in pricing and terms on the contract under any given circumstance
What reforms usually affect the insurer in both cost and loss prevention?
Underwriting training is required
Computer systems need to be upgraded
New rating software must be developed
Modifications for data capturing and reporting are required
Producer training must be completed
New policy forms or other documentation are required for any change in benefits or coverage
Explain rating criteria in regards to human rights legislation
Prohibits an insurer from refusing to insure a person, cancelling, or refusing to renew a car based on;
Persons age
age of vehicle
Missing a payment
What are key areas to focus on in regards to fair treatment of customers
Developing, marketing, and selling insurance products in a way that puts clients interests first
Communicating cleared sufficient information at the point of sale
Preventing selling insurance products that are not appropriate to clients needs
Handling client claims, complaints, and disputes in a fair and timely manner
Protecting the privacy of client information
