C
Cheng
Member
Hi! Hope someone can shed some light on premium rate changes, as I don't work in with a general insurer, I'm having some difficulty imagining how it's done and hence understand the readings.
From what I gathered from the readings, it's generally done to compare the premium rates at t1 and t2. Method 1,2 and 4 makes sense but I don't really get method 3, i.e. measure rate changes on individual renewals.
a) at renewals, don't insurers need to determine the premium to charge policyholders and hence would have premium at t2?
b) is this method usually used for policies with premium adjustments and hence premium at t2 can't be determined accurately?
c) from the ratio of E(Loss at t2) over E(Loss at t1), we determine Prem at t2/ Prem at t1 = Prem at t2 / [ Prem at t1 * {E(Loss at t2)/ E(Loss at t1)}]. I don't really understand this formula. Wouldn't it make more sense if Prem at t2 = Prem at t1* {E(Loss at t2)/ E(Loss at t1)}
d) from the readings it says that rate change for a group of renewed policies can be expressed as [ sum of Prem at t2 / sum of as-if prem at t1 -1]. Why do we adjust premium at t1 since we would already have prem at t1?
Lastly, one disadvantage of method4, is that there may be confusion around pure rate change and mis-pricing. Can you give another example of how this may arise or further explanation on the example given in the readings?
Thanks in advance!
From what I gathered from the readings, it's generally done to compare the premium rates at t1 and t2. Method 1,2 and 4 makes sense but I don't really get method 3, i.e. measure rate changes on individual renewals.
a) at renewals, don't insurers need to determine the premium to charge policyholders and hence would have premium at t2?
b) is this method usually used for policies with premium adjustments and hence premium at t2 can't be determined accurately?
c) from the ratio of E(Loss at t2) over E(Loss at t1), we determine Prem at t2/ Prem at t1 = Prem at t2 / [ Prem at t1 * {E(Loss at t2)/ E(Loss at t1)}]. I don't really understand this formula. Wouldn't it make more sense if Prem at t2 = Prem at t1* {E(Loss at t2)/ E(Loss at t1)}
d) from the readings it says that rate change for a group of renewed policies can be expressed as [ sum of Prem at t2 / sum of as-if prem at t1 -1]. Why do we adjust premium at t1 since we would already have prem at t1?
Lastly, one disadvantage of method4, is that there may be confusion around pure rate change and mis-pricing. Can you give another example of how this may arise or further explanation on the example given in the readings?
Thanks in advance!