If you’re trying to price something using a costs plus approach, this is quite similar to some parts of reserving. In both you are trying to estimate the expected future claims the company will need to pay out. However, in reserving you are estimating the future claims the company will have to pay out for business it has already written, and in pricing you are estimating the future claims for business it has not yet written.
If there is worse than expected claims experience, and the company believes this means future cash out-flows for policies it has not yet written will be higher, then it would likely increase prices, yes. If they also believe future cash out-flows for policies it has already written will be higher, they would increase their reserves. It all depends on whether they think the claims experience so far should affect future cash flows though.
For example, if a large event like COVID hits and insurers have to pay out lots of claims, they might not think this should affect *future* claims if they assume everything will return to normal. On the other hand if they see that miracle medicine XYZ has been invented, and they see their life policy claims dropping compared to what they expected, they might think both future prices should be lower and their reserves should be lower.
Last edited: Sep 11, 2022