J
jensen
Member
Hi
The question asks how do we calculate the percentage change in risk premium for motor policies after the introduction of policy excess.
The solution suggests calculating the total risk premium before the excess (i.e. from ground up), and the risk premium after the excess:
policy excess * number of claims above the excess
plus
avg claim severity below excess * number of claims below excess
I kept thinking I have to calculate the expected claims above the excess, then the take the ratio of this to the total risk premium from ground up, less 1 as the percentage change (because i'm looking at it from the insurer's perspective??)
Where did my thought process went wrong?
The question asks how do we calculate the percentage change in risk premium for motor policies after the introduction of policy excess.
The solution suggests calculating the total risk premium before the excess (i.e. from ground up), and the risk premium after the excess:
policy excess * number of claims above the excess
plus
avg claim severity below excess * number of claims below excess
I kept thinking I have to calculate the expected claims above the excess, then the take the ratio of this to the total risk premium from ground up, less 1 as the percentage change (because i'm looking at it from the insurer's perspective??)
Where did my thought process went wrong?