Topic 5 Ratemaking

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  1. What are the 5 characteristics of rates?
    • Stable
    • Responsive
    • Plan for Contingencies
    • Promote Loss Control
    • Keep It Simple
  2. Why must a rate be stable?
    • Changing rates are expensive
    • Sudden changes upset customers
    • Bad publicity and regulatory attention
  3. What does is mean to be responsive in terms of ratemaking?
    • Change promptly in response to external market forces
    • *Can be in conflict with Stability
  4. What does it mean to have a plan for contingencies in respect to ratemaking?
    • Account for unexpected variations in losses and expenses
    • Risk Charge (When confident P* is less)
  5. What does it mean to promote loss control in respect to ratemaking?
    • Adjust rates for policyholders that take preventive measures
    • Charge higher rates for higher risks
  6. What does it mean to keep it simple in respect to ratemaking?
    • Producers and underwriters can utilize 
    • Policyholders can understand
  7. Who can an actuary work for?
    • Insurance Companies
    • Consultants
    • Regulatory Authorities
  8. What do actuaries working for advisory organizations such as ISO supply?
    Prospective Loss Costs
  9. What are Prospective Loss Costs?
    • Amount needed to pay future claims
    • Also Known As Pure Premium (P*)
  10. What is an expense provision?
    • Amount needed to pay future expenses (premium taxes, overhead, etc.)
    • Also Known As Loading
  11. What are profit and contingencies?
    • Where carrier accounts for the losses exceeding expectations and possible profit
    • Also Known As Risk Charge
  12. How do you estimate losses?
    • Past losses is usually starting point
    • Takes losses from past periods and adjust for future conditions
    • Sometimes difficult because past history includes actual losses and loss reserves
    • Loss reserves are estimates on costs for claims reported and not reported
  13. What does IBNR mean?
    • Incurred But Not Reported
    • Not all claims are paid in the year premium is paid
    • Not all are even reported the year the premium is paid
    • Means that we are always making estimates
  14. What are the three rate components?
    • Prospective Loss costs
    • Expense Provision
    • Profit and contingencies
  15. What are some other delays to rate function?
    • Time required to analyze data and prepare a rate filing
    • Waiting for state approval
    • Time it takes to implement a new rate
    •    -Rates in effect for one year - time lag till you can implement a change
    • Legislative or regulatory changes
    • Hard vs. Soft Market
  16. What are the ratemaking methods?
    • Pure Premium Method 
    • Loss Ratio Method
    • Judgment Method
    • Ratemaking Data Development
    • Policy Year Data Collection Method
    • Calendar Year Collection Method
  17. What are the steps for the Pure Premium Method?
    • Calculate the pure premium
    • Calculate expenses per unit 
    • Profit and Contingent Factor
  18. What are the steps in Ratemaking Data Development?
    • Collect data
    • Adjust data
    • Determine territory and class
    • Prepare rate filing and submit to regulatory authorities
  19. What are the steps in the Judgment Method?
    • Underwriter sets rates based on experience or judgment
    • Ocean Marine, Inland Marine, Aviation, and some Lloyd's vehicle
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Topic 5 Ratemaking
2015-03-16 05:18:42
Topic5 McCloskey

Topic 5 Flashcards
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