April 2019 Q3

[BenL]

Hi All,
I’m working through Q3ii) and I would like some clarity on the marking schedule for the issues in exposure rating the Travel policy.

The first point in the marking schedule states, “Direct business for consumer policyholders generally won’t have any experience so would not carry out any kind of burning cost experience pricing on an individual policy basis for an individual consumer policy”

The second point states, “...although would have a lot of data to develop an exposure based pricing model”

I am completely confused by the first statement. If you were selling business direct to the consumer, I agree that practically you would not perform an experience pricing exercise for each individual, you would rather develop an exposure based pricing model, per the second point. But why would you not have any experience? Are they assuming that any policy that claims will terminate after the claim and then not renew?

Any help in clarifying this would be greatly appreciated!

Thanks,

 

[Ian Senator]

What they're saying is that you probably won't have any claims experience for any one individual, and so cannot realistically experience rate for that individual. Instead, you would have lots of data for the direct travel insurance as a whole, in which case you can use that experience to put together a set of travel insurance premium rates, and then when each policyholder comes along for a quote, you use those rates applied to the exposure that policyholder brings, ie exposure rating. This is explained further in mini-ASET.