ASOP 12: Risk Classification Flashcards

1
Q

Considerations for which characteristics to use

A
LIBCORP
Legality
Industry practices
Business practices
Causality
Objectivity
Relationship to expected losses
Practicality
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2
Q

Relationship of risk characteristic to expected losses

A

Correlation between variable and expected costs

Can use expert opinions in lieu of data

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3
Q

Causality

A

Nice to have
Not necessary
Hard to prove

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4
Q

Objectivity

A

Readily verifiable
Clearly/objectively defined
Not easily manipulated

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5
Q

Practicality

A

Initial and ongoing cost of classification

Current systems in place

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6
Q

Legality

A

Does it adhere to applicable law

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7
Q

Industry practices

A

Is it common to use/customary for insurers to include the risk characteristic

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8
Q

Business practices

A

Are there limitations currently preventing use of risk characteristic? Any duplication of efforts that can be avoided?

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9
Q

Considerations in establishing risk classes

A

Intended use
Actuarial
“Other”
Reasonableness of results

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10
Q

Intended use when establishing risk classes

A

Reserving vs. ratemaking

Ex: personal auto (combining coverages in ratemaking, finding ultimate losses separately)

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11
Q

Actuarial considerations when establishing risk classes

A

Homogeneity (to prevent adverse selection)
Credibility
Practicality

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12
Q

“Other” considerations when establishing risk classes

A

Applicable law
Industry practices
Business practices

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13
Q

Testing a risk characteristic

A

System should be reviewed to see if a change is needed

Ex: is adverse selection occurring? has the predictiveness changed?

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14
Q

Communications regarding risk classifications

A

Actuary should thoroughly document work

  • significant assumptions made
  • deviations from traditional practices
  • any data limitations
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