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Phani Vasantarao
Member
Could anyone explain the difference between UPR and URR with examples? I just can't seem to wrap my head around these ideas.
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Unearned premium reserve vs unexpired risk reserve
- Thread starter Phani Vasantarao
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bystander
Member
I think of it this way. You pay a premium say for a year and if it were in say daily instants you'd pay that same level every inslment. However when you calculate unexpired risk you take into account the risk left which may not be even. To give perhaps a topical example, there are more household claims in winter than summer (burst pipes/weather issue sect) so if it's just winter months left, the reserve for the unexpired portion of the policy is higher than straight prorata. Does this help at all?
Not quite right, I'm afraid, Bystander, but nearly there. UPR's can also be calculated using an uneven incidence of risk (ie pro-rata over the year is not always the assumption when calculating a UPR - more about this in Subject ST7).
The key similarity is that both are trying to estimate the outstanding claims (and associated expenses) in the unexpired period of cover. The key difference is that whereas the URR is what you're actually trying to calculate (allowing for actual future estimated risk), the UPR is calculated simply by taking a proportion (again, not necessarily pro-rata) of the premium actually received. So, for example, if the premium is too low then taking a proportion of it is not going to cover future claims, and you need an extra amount to bring you up to the URR. (This extra amount is often called the additional unexpired risk reserve, or AURR).
Hope this helps.
P.S. I'm a GI tutor, not a health tutor, so forgive the GI bias!!
The key similarity is that both are trying to estimate the outstanding claims (and associated expenses) in the unexpired period of cover. The key difference is that whereas the URR is what you're actually trying to calculate (allowing for actual future estimated risk), the UPR is calculated simply by taking a proportion (again, not necessarily pro-rata) of the premium actually received. So, for example, if the premium is too low then taking a proportion of it is not going to cover future claims, and you need an extra amount to bring you up to the URR. (This extra amount is often called the additional unexpired risk reserve, or AURR).
Hope this helps.
P.S. I'm a GI tutor, not a health tutor, so forgive the GI bias!!
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Phani Vasantarao
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Thanks to both of you. I think that really helps! Ian's explanation is so helpful I'm going to add it to my notes! Thanks again.