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Burning Cost

S

SA_Act_Student

Member
I know what is meant by Experience Rating (using past experience to price group business).

I also know that "Burning Cost" is the same type of thing. But how does it differ from Experience Rating?
 
Burning Cost (as defined in the ST1 when used in a group pricing context) means the historic claims experience on the actual scheme, adjusted for changes in benefits, lives covered, inflation, etc.

A “experience rating” approach is where you combine the book rates with the burning cost to arrive at the expected cost of claims for the group (and add loadings to get the premium).

Hope this is OK.
 
I've just noticed that the Glossary says the term "burning cost" can also refer to just the historic claims costs, in which case you'd have to make the adjustments first, before combining with the book rates.

So, for the exam, make sure you explain what you mean by burning cost if you use the term.
 
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