Net risk premuim Flashcards
Principal of individual risk equivalence
The net risk premium = expectancy-value
What is the name of the premium that the consumer pays?
gross premium
What other name for the NRP
Actuarially fair premium
How is NRP achieved
Differentiation in premiums
What are individual or risk appropriate premiums?
Differentiated premiums
What are non-diffrenciated premiums called?
General premiums
Primary premuim diffrenciation
Happens at the beginning of the policy where the insured is underwritten on risk features
What are risk features used in primary differentiation
Age, state of health ….
What are the 2 types of NRP calculations
Absolute and relative
Absolute NRP
An amount in money
Relative
Percentage of the sum insured
How is relative NRP used?
When the insurer underwrites a risk then this percentage is applied to the respective sum insured
Relative frequency of loss
No. losses / no. risks
Average loss (absolute)
Loss amount (€)/losses
Absolute NRP
Relative loss (%) * average loss
Absolute NRP (fast)
Total losses/number of risks
Average loss (relative)
(Loss amount (€)/no. of Losses) /(Total sum insured/number of risks)
- Fast version: Average loss absolute/Avg. sum insured
Relative NRP
Relative loss % * average loss
Relative NRP (fast)
Total losses/total sum insured
What are the problems with primary differentiation
- Limits to providing the influence of factors to a loss
- Hard to decide whats factors are important
- Factors might not be consistent
- Can be time-consuming and expensive to find out
What is used to calculate secondary differentiation?
Claim history
How does experience rating differ from adaptation clauses?
Here adaptation clauses are used for inflation or other general changes
How do you calculate a secondary differentiated premium using the pure method (absolute)
Sum of all losses so far/(number of periods-1)
How do you calculate a secondary differentiated premium using the pure method (relative)
(Sum of losses/sum of sums insured) * sum insured
