# B.14.Gillam & Snader 3

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1. Why demand for high ded policies incr?
• trend toward self-ins to provide savings to insd
• insd tx saving since liability for ins ded on unpd clm is tax ded
• positive cash flow to insr
• reduction of assessments for residual mkt pools
2. Deductible vs excess policies
• ded usually for smaller retentions for risk w high frequency. Insr settles loss and is reimb for ded
• excess usually for high retention, self ins. Insr only settles clms over retention
3. Calculation of ELR (ded / xs policy)
• straight ded: k = [Lr + (N-n)r] / L
• k = LER, N = # clm, n = # clm < retention, Lr = loss < ret
• disappearing ded: k = {Lr + LR - (LR - rNR) / [R / (R - r)]} / L
• LR = loss btwn r and R, NR = # clms btwn r and R
• fk = tempered LER (insr still responsible if insd can't pay)
4. Determination of discount (D = 1 - P' / P) (ded policy)
• assume A, T, P proportional to P
• assume other exp are fixed portions of full cov prem
• P = [(E - a)P + eP] / (1 - A - T - p)
• P' = [(1 - fk)(E - a)P + eP] / (1 - A - T - p)
• D = fk(E - a) / (1 - A - T - p)
5. Determination of discouts (xs policy)
• case 1: A, T, p, i, u, gh prop to P, other are fixed
• P = (EP + eP) / (1 - A - T - p - i - u - gh)
• P' = [(1 - fk)EP + eP] / (1 - A - T - p - i - u - gh)
• D = fkE / (1 - A - T - p - i - u - gh)
• case 2: A, T, p prop to P, i, u, gh prop to XS loss, other fixed
• D = fkE(1 + iE + uE + ghE) / (1 - A - T - P)
6. Determination of discount (ex-med covg)
• LER only applies to med PP
• ex-med PP = total PP - portion of med PP
• why portion: adverse selctn, may req pmt of some med, liable
• only A and T are prop to P, other expenses not reduced
• P = (E + eP) / (1 - A - T)
• P' = (E - kEM + eP) / (1 - A - T)
• D = [(1 - A - T - e) / (1 - A - T)] * (kEM / E)
7. Adjustment under retro rating
• c' = adjusted loss conversion factor so that loss dollars provided by c = loss dollars from c of ex-med pol
• let J = c - 1, J' = c' - 1 = J * E / (E - kEM)
• J' = J(1 - A - T - e) / [(1 - D)(1 - A - T) - e]
 Author: Exam8 ID: 166072 Card Set: B.14.Gillam & Snader 3 Updated: 2012-08-15 01:09:16 Tags: high deductible policy excess Folders: Description: Fundamentals of Individual Risk Rating, Part III Show Answers: