Establishing the price: rating factors Flashcards
What are the different levels of decision-making for insurers?
Board level, Manager level, and Operational level.
What data does the board level focus on?
Group performance / profitability
Control downside - catastrophe reinsurance
Broad strategy
What is reported at the manager level?
New business
Renewal rates
Underwriting performance
Loss ratios
What data is needed at the operational level?
Day to day requirements
Customer service levels
Accuracy of claims data
Documentation and credit control
Why is claims data important to insurers?
Claims data is crucial as it helps predict future losses and determine the premium needed to cover anticipated claims costs.
What are underwriters analysing in claims data?
Trends over time (up or down)
Number of claims
Average cost of claims
Causes of claims
Large claims that might distort patterns
What is the impact of the Personal Injury Discount Rate (PIDR)?
It adjusts the lump sum settlements for claimants, influencing the amount of claims insurers must reserve. The PIDR was set at -0.75% in March 2017 and then changed to -0.25% in August 2019.
What is the difference between high frequency, low severity and low frequency, high severity claims?
High frequency, low severity claims are predictable and involve many small losses (e.g., mobile theft); low frequency, high severity claims are rare but highly damaging (e.g., oil spills).
How does reinsurance help insurers?
Reinsurance protects insurers from large, unpredictable losses by covering large individual claims or accumulations of risks creating large losses.
What is a claims loss ratio?
A claims loss ratio is the ratio of claims to premiums, calculated as (claims incurred / premium) * 100.
What is the Earned Loss Ratio (ELR)?
The ELR is the claims incurred divided by earned premium, adjusting for claims within the time premium is earned. It accounts for IBNR and reinsurance.
What is an Outstanding Loss Ratio (OLR)?
The OLR focuses on claims reported but not yet settled, comparing claims against booked premiums but with limited value for overall profitability analysis.
What are the types of monitoring periods for insurers?
Policy year, Underwriting year, Calendar year, and Accounting year. Each period monitors performance differently, focusing on claims and premiums based on policy inception, underwriting decisions, or accounting cycles.
What is the difference between policy year and underwriting year?
The policy year tracks the performance of individual policies, while the underwriting year groups policies by the year they incept, tracking claims trends and pricing impact over time.
How does the Calendar Year monitoring period work?
Claims and premiums are allocated based on the calendar year, with premiums earned in the relevant year depending on the policy’s term.
What is the purpose of accounting year monitoring?
It tracks claims and premiums based on the insurer’s financial year, requiring estimates for future developments, making it less reliable for trend analysis.
Why is account performance monitoring important?
It allows underwriters to assess profitability and adjust underwriting and pricing strategies based on performance over time.
Lapse flow
Lost business
Underwriting year
Both premium and claims are based on year that the policy is incepted
