Fall 2007 #7 - pooling

[almostASA]

I think I may have a basic misunderstanding of what "non-pooled" claims are.

This question requires a credibility weighting of "incurred claims before pooling" and "expected incurred claims" per Group Insurance page 727. Intuitively, I think that claims before pooling means that you haven't done anything to them, they're just what they are.

However, the solution to this problem shows the formula for "incurred non-pooled claims" as:
= [paid claims] + [change in reserve] - [large claims above pooling threshold]

So, are "incurred claims before pooling" different than "incurred non-pooled claims"? I'm sure that "pooled claims" represent the amount above the pooling threshold, so it makes sense that non-pooled claims represent the amount below the pooling threshold. Do you think this is just poor terminology in the book or is there an actual difference?

[Angstrom]

I don't have my materials here. Don't you add in the Pooling Fee (whatever it is $35/month or 70/month...something like that) later in the problem? If so, I would expect "Incurred Claims Before Pooling" to have the large claims above pooling subtracted, regardless of what the name implies.

Yes, I have noticed most of the notation would be much cleaner in problems. That is why I am banking on stating assumptions & using common sense. Thank Crom for partial credit on this exam. But this is also real life, "OK, so you want the premium numbers for this case, which one of the 12 definitions for premium do you want? (Earned, Paid, billed, YTD, etc.)"

[Shadowcat]

i think that is a typo in the solution and that should say "actual incurred claims less large claims." later the pooling charge is added after the claims have been credibility weighted.

[FSAsomeday]

I think your confusion is that you are focusing just on the Credibility Weighting method of pooling claims when this problem is actually using a combination method of Credibility Weighting and Catastrophic Claims Pooling.

If you are using ONLY Credibility Weighting then the only way to deal with the the high claims is to weight the total claims (aka "incurred claims before pooling") with some amount of "expected incurred claims after pooling" that would have high claims removed.

But in this problem we are dealing with a second method as well. Not only are we weighting claims with experience, we are also removing claims above $50,000 and adding a pooling charge. The combination of these two methods leaves us with a weighting of "non-pooled claims" with "expected incurred claims".

I hope this is not too confusing but it difficult to explain. I think of it in a very simple way: if we are using ONLY Credibility Weighting we use "Incurred claims before pooling" with NO adjustment to it. If we are using Catastrophic Claims Pooling then we want to work with "Incurred non-pooled claims" and add the pooling charge later.

Does this make sense, or should I delete this message because it is just confusing people further?

[gppbb]

I think your confusion is that you are focusing just on the Credibility Weighting method of pooling claims when this problem is actually using a combination method of Credibility Weighting and Catastrophic Claims Pooling.

If you are using ONLY Credibility Weighting then the only way to deal with the the high claims is to weight the total claims (aka "incurred claims before pooling") with some amount of "expected incurred claims after pooling" that would have high claims removed.

But in this problem we are dealing with a second method as well. Not only are we weighting claims with experience, we are also removing claims above $50,000 and adding a pooling charge. The combination of these two methods leaves us with a weighting of "non-pooled claims" with "expected incurred claims".

I hope this is not too confusing but it difficult to explain. I think of it in a very simple way: if we are using ONLY Credibility Weighting we use "Incurred claims before pooling" with NO adjustment to it. If we are using Catastrophic Claims Pooling then we want to work with "Incurred non-pooled claims" and add the pooling charge later.

Does this make sense, or should I delete this message because it is just confusing people further?

I was confused too, but I think what you said makes sense to me. Thanks!

[almostASA]

I think your confusion is that you are focusing just on the Credibility Weighting method of pooling claims when this problem is actually using a combination method of Credibility Weighting and Catastrophic Claims Pooling.

If you are using ONLY Credibility Weighting then the only way to deal with the the high claims is to weight the total claims (aka "incurred claims before pooling") with some amount of "expected incurred claims after pooling" that would have high claims removed.

But in this problem we are dealing with a second method as well. Not only are we weighting claims with experience, we are also removing claims above $50,000 and adding a pooling charge. The combination of these two methods leaves us with a weighting of "non-pooled claims" with "expected incurred claims".

I hope this is not too confusing but it difficult to explain. I think of it in a very simple way: if we are using ONLY Credibility Weighting we use "Incurred claims before pooling" with NO adjustment to it. If we are using Catastrophic Claims Pooling then we want to work with "Incurred non-pooled claims" and add the pooling charge later.

Does this make sense, or should I delete this message because it is just confusing people further?

I think I get what you're saying - this problem was definitely catastrophic claims pooling.