Fisher.ExpRating: Difference between revisions
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The experience modification facilitates a comparison of the insured's expected loss <u>''relative to other risks in its class''</u>. Experience rating quantifies how much an insured's past loss experience is predictive of its future loss experience and uses this to rate prospectively with greater accuracy. | The experience modification facilitates a comparison of the insured's expected loss <u>''relative to other risks in its class''</u>. Experience rating quantifies how much an insured's past loss experience is predictive of its future loss experience and uses this to rate prospectively with greater accuracy. | ||
<u>Advantages of Experience Rating</u> | |||
* Account for differences between risks within a class, such as | |||
** Different locations and equipment | |||
** Management styles | |||
** Use of materials | |||
** Safety processes and level of training. | |||
* Account for differences due to variables which are difficult, impractical, or impossible to measure using rating variables. | |||
* Additional refinement - more useful when there are few rating classes or classes have a broad range. | |||
Experience rating is useful because not all risks fit neatly into a class. A risk may have unique operations, or the rating system may lack sufficient refinement to group appropriately. | |||
==Pop Quiz Answers== | ==Pop Quiz Answers== | ||
Revision as of 14:09, 9 March 2020
Reading: Fisher, G., et al., "Individual Risk Rating Study Note" CAS Study Note Version 3 October 2019, Chapter 1
Synopsis: To follow...
Study Tips
...your insights... To follow...
Estimated study time: x mins, or y hrs, or n1-n2 days, or 1 week,... (not including subsequent review time)
BattleTable
Based on past exams, the main things you need to know (in rough order of importance) are:
- fact A...
- fact B...
reference part (a) part (b) part (c) part (d) E (2018.Spring #1) E (2018.Spring #1) E (2018.Spring #1) E (2018.Spring #1) E (2018.Spring #1) E (2018.Spring #1) E (2018.Spring #1) E (2018.Spring #1)
In Plain English!
Experience rating is the use of an insured's past loss experience to determine rates for a future exposure period. An experience rating plan is the set of rules, definitions, formulas, etc. which are needed to calculate such a rate. The experience rating plan generally produces a multiplicative factor called the experience modification or e-mod. The experience modification factor corresponds to the individual insured and is used to adjust the manual premium which is the starting point premium for a whole class of insureds.
The standard premium is the experience modification factor multiplied by the manual premium. This technically assumes the schedule modification factor is 1.000. If there is a non-unitary schedule factor, then the prior calculation is known as the modified premium. The standard premium is then the modified premium multiplied by the schedule modification factor. The first chapter of the Fisher paper assumes the schedule modification factor equals 1.000.
A debit mod is when the experience modification satisfies: [math]\mbox{e-mod}\gt 1.0[/math]. This implies the insured's experience is worse than average for its class.
A credit mod is when the experience modification satisfies: [math]\mbox{e-mod}\lt 1.0[/math]. This implies the insured's experience is better than average for its class.
The experience modification facilitates a comparison of the insured's expected loss relative to other risks in its class. Experience rating quantifies how much an insured's past loss experience is predictive of its future loss experience and uses this to rate prospectively with greater accuracy.
Advantages of Experience Rating
- Account for differences between risks within a class, such as
- Different locations and equipment
- Management styles
- Use of materials
- Safety processes and level of training.
- Account for differences due to variables which are difficult, impractical, or impossible to measure using rating variables.
- Additional refinement - more useful when there are few rating classes or classes have a broad range.
Experience rating is useful because not all risks fit neatly into a class. A risk may have unique operations, or the rating system may lack sufficient refinement to group appropriately.