1996 Q31

[piemedia]

If eff date 10/1/1996, #car written 60.
eff date 1/1/1997, # car written 100.


Assume 6 month policy, & one car per 1 yr.


Calculate # of in-force exposures on 1/1/1997?

[Vorian Atreides]

What do you think the answer should be?

[piemedia]

What do you think the answer should be?

80?

[Vorian Atreides]

I agree if you add the label caryears. (I'm not sure if you'd get full credit without it.

[piemedia]

I agree if you add the label caryears. (I'm not sure if you'd get full credit without it.

But, someone say it's 160... Because in-force exposure is the total number of insured units that are exposed to loss at a given time... Even, it's a 6 months policy, it should be counting a whole cars in effect,,, So confused!!!

[Vorian Atreides]

That is why the "caryears" label is so important.

One could say that 160 cars are insured; but it generally isn't an industry standard to do it this way given that a company may have a mix of policy types (private passenger autos written with a semi-annual term, commercial autos written on an annual term--how do you express the exposure here in a comparable and consistent manner?).

And in cases where one policy will provide coverage for one car, this sort of measure might make sense; but it would be stated as 160 policies-in-force rather than 160 cars; and this situation implicitly assumes that the underlying policies are all of the same type (e.g., annual or semi-annual).

A (very subtle) underlying concept about exposure to understand is that it also includes a sense of time. Most likely, the original Exam problem was a MC type question, with both 80 and 160 as possible choices (both with some type of units attached). If it were the case that 80 caryears was one choice and 160 cars was another, I would select the first option as the best answer to the question (even though both are, technically, correct).

Good news, you won't see such a problem under the current Exam structure.