Trending

[Jun Wu]

Hi All

I hope you are well.

Please may I check with you on trending.

I am confused by what Trending really means, I thought it is a process of adjusting the base period data so that it is relevant for the rating period (ie the period for which the new rate will apply). So this includes all factors which affects the severity and frequency of claims.

for examples:

1. Inflation (Wage, court)
2. Nature of risk (annual or multiple trips)
3. Coverage (excess, limits)
4. External factors (propensity to claims)

etc

And when we adjust for them, we should adjust between historical average claims payment date and expected average payment date of future policy period?

Is this correct?

If so, the phrase 'claims inflation', is NOT referring to inflation (point one above), but rather it means all these factors which affects claims (frequency and severity) between base and rating period?

Thanks for your time !
Jun

 

[Ian Senator]

There's no strict definition, Jun. Many practitioners take trending to mean adjusting solely for claims inflation, but others interpret it to mean adjusting for all trends, including inflation. In the exam, they won't really mind what you call it.

 

[Jun Wu]

There's no strict definition, Jun. Many practitioners take trending to mean adjusting solely for claims inflation, but others interpret it to mean adjusting for all trends, including inflation. In the exam, they won't really mind what you call it.

Thanks Ian!
But how do you define claims inflation?

And is my understanding correct above? i.e. I can take trending to mean all those factors which could make a difference to the claims (freq and sev) between base and rating period?
Thanks!

 

[Ian Senator]

Again, no strict definition. For example, some take it to mean increase in both frequency and severity, some just severity. So again, just say what you mean in the exam.
As for whether you're correct about trending - see my post above, not sure there's anything more I can add!

 

[Jun Wu]

Again, no strict definition. For example, some take it to mean increase in both frequency and severity, some just severity. So again, just say what you mean in the exam.
As for whether you're correct about trending - see my post above, not sure there's anything more I can add!

Thanks Ian for the reply

Apologies if I am confusing you on what my question is

perhaps let me ask it this way.

There are many factors which increase/decrease claim frequency and/or claim severity, such as higher speed limit (legislation change) - increase severity, higher propensity to claim - increase frequency.

So if i define trending to mean increase in both frequency and severity, then this means i am taking into consideration =allowing for changes in all these factors between base period (from which frequency and severity were derived) to rating period (for which the rate will apply), so that the 'trended' frequency and severity is relevant for the calculation of risk premium for the rating period/new policy period. ?

Thanks!

 

[Ppan13]

Loss trends refers to changes in claim frequencies and claim costs due to the impact of various underlying factors that change over time, e.g inflation (CPI, wage, court awards, social inflation) , medical costs, societal attitudes/ consumer behaviour, state of the economy etc.)

Exposure measures (e.g. turnover, payroll) are also subject to inflationary pressure, which constitute 'exposure trends'. Additionally, changes in the characteristics of policies written over time (e.g. increasing deductibles) would impact premium, and this is sometimes referred to as premium trend (though you’d need to consider whether changes are one-time historic events or something expected to continue into the future when considering trend in the context of pricing).

The 'trending' of data could therefore be adjusting for any of these.