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confused
10-25-2007, 05:06 PM
Why is the pooling charge being added to the Net Claims before credibility weighting? Initially, I added the pooling charge after taking the weighted average of the Manual claim rate and the Net Claims Experience rate.

The solution seems to be only using 25% of the pooling charge.

To me, catastrophic pooling is almost considered a separate product. If we assumed that this group had no credibility, we would only need to use the manual claims rate. And if they had catastrophic pooling then we would need to add the pooling charge to the manual claims rate.

Any help would be appreciated. Thanks!

Rainson
10-25-2007, 06:50 PM
The manual rate represents the estimate of claims both under and over the pooling point. Therefore we do not need to add the pooling charge to the manual rate portion or we would be charging twice for that portion.

If you were to pull the catastrophic coverage out and price it as a separate benefit, you would need to pull the expected cost of claims over the pooling level out of the manual rate too so that the manual rate would only represent the cost of claims below the pooling point.

In that case, you would be charging a blend of the experience claims below \$50,000 and the manual claims below \$50,000 PLUS a pooling charge representing the expected (or manual) claims above \$50,000.

In the problem we are essentially charging a blend of the experience claims below \$50,000 and the manual claims below \$50,000 PLUS a blend of the manual claims above \$50,000 and the manual claims above \$50,000 (in other words only the manual claims above \$50,000).

10-25-2007, 07:08 PM
nevermind

confused
10-25-2007, 08:50 PM
The manual rate represents the estimate of claims both under and over the pooling point. Therefore we do not need to add the pooling charge to the manual rate portion or we would be charging twice for that portion.

If you were to pull the catastrophic coverage out and price it as a separate benefit, you would need to pull the expected cost of claims over the pooling level out of the manual rate too so that the manual rate would only represent the cost of claims below the pooling point.

In that case, you would be charging a blend of the experience claims below \$50,000 and the manual claims below \$50,000 PLUS a pooling charge representing the expected (or manual) claims above \$50,000.

In the problem we are essentially charging a blend of the experience claims below \$50,000 and the manual claims below \$50,000 PLUS a blend of the manual claims above \$50,000 and the manual claims above \$50,000 (in other words only the manual claims above \$50,000).

That makes sense...Thanks!

FSA2080
10-26-2007, 04:11 PM
But why in Question 1, the pooling charge is added after the credibility weighting? Understand that there is no manual rate here, but is adding the pooling charge before credibility weighting also an acceptable approach? or there is a certain solid rule must be followed?