C14 Study 7
Ratemaking
Ratemaking
A: The degree of uncertainty is reduced as the number of events increases.
Q: What is
"The Law of Large Numbers"?
A: This takes factors such as damageability, reparability and parts availability into account, and is a numerical value assigned to a vehicle based on its expected claims costs.
Q: What is:
A "Vehicle Rate Group"?
A: This component of Loss Costs is referred to as a "known amount" or "known amounts".
Q: What are:
"Paid Losses"?
A: This Agency provides industry-wide statistics for analysis by regulators & rate makers. All private auto insurers must record & file automobile experience data to them.
Q: What is:
"GISA = General Insurance Statistical Agency"?
A: This component of Loss Costs is liability for future payments on losses that have occurred but have not yet been reported to the insurer.
Q: What are:
"IBNR losses"?
A: For these types of insurers, a premium is paid when the operator’s license is purchased or when a vehicle registration is issued.
Q: What are:
"Government Insurers"? (BC, SK, MB)
A: These are claims that are reported, but not yet paid.
Q: What are:
"Outstanding Losses"?
A: These have set up by some provincial governments to control auto insurance rates. In the provinces without them, the Insurance Acts give supervisory powers to the Superintendents of Insurance.
Q: What are:
"Rate Boards"?
True or False: All insurers and financial institutions invest the premium income they earn and use the investment income to keep auto insurance rates low and stable.
TRUE. The use of insurer investment income to modify premiums is monitored by regulators – they are interested in the overall return on equity (the capital invested) when determining permitted rate levels.
True or False: The actuary is responsible for forecasting the trend of increase or decrease of loss costs that premiums are calculated.
TRUE.
A: This type of pricing is more individualized, tying current behaviours to rating instead of stats and past records.
Q: What is:
"Usage-Based Insurance (UBI)"?
A: This component of Loss Costs is usually referred to as "estimates" in claim files.
Q: What are:
"Outstanding Losses"?
True or False: Expense Loading is the amount required to pay only anticipated losses.
FALSE. Expense loading is the amount added to the pure premium, including acquisition, processing & servicing, taxes, contingencies, profit.
Pure Premium is the amount required to pay only anticipated losses.
A: Companies file their proposed rates, and the law allows a period, such as 30 or 60 days, during which the board can challenge them. Following this period, the company can use the unchallenged rates as they are then deemed to be approved.
Q: What is:
"File & Use Following Adjudication Period"?
A: This is the amount required to pay only anticipated losses and does not consider money needed for company expenses.
Q: What is:
"Pure Premium"?