Fall 2014 #19
Why is it that for a LDD policy, the ULAE AND the Loss based assessment is included in the "LAE %" in the formula, but for the Excess Premium policy, only the ULAE is included in the "LAE %" in the formula? i.e. in Part a) we have both 7% and 5% applied to the 900k, but in part b) we have only the 7% ULAE applied to the 900k.
Comments
The key here is to understand what the insurer is offering. With a large dollar deductible policy the insurer is offering both coverage and services as they service all claims and seek reimbursement for the deductible losses. Whereas with an excess policy the insurer is only paying out on excess claims and is not involved in the servicing of claims.
The loss based assessment is equivalent to ALAE which the insurer doesn't incur when they write an excess policy.
I see, thank you!