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Ruby
02-22-2005, 06:35 AM
Feldblum WC, Q24,2001 Exam5:
(I’m posting here a short version of the problem, to focus only on the confusing point)

Q) Given the following, find Involuntary Market Burden:

Pool Premium: $10M

Operating Loss Ratio of Pool: 12.5%

Due to higher premium deposits, 10% of Involuntary risks seek coverage in Voluntary markets

5%(or $2.5M) of Voluntary Market Premium is expected to leave for Self-Insurance.

Solution:
Involuntary Market burden = operating loss ratio (Invol Premium/Vol Premium)

where:

Involuntary premium (as used in above formula) is calculated as:

10M(.9)=9M

My problem is that I don’t see where the risks leaving the voluntary market for self-insured retention went?

Shouldn’t they be added back in “Involuntary Premium” calculated above
I-e 9M+2.5M? Am I missing something?

Many thanks!

Examinator
02-26-2005, 08:39 AM
I've worked this problem and if an employer leaves the WC voluntary market for self insurance, they are assumed to no longer be purchasing WC coverage from a carrier (since they are now insuring their own employees). It doesn't mean leaving the voluntary market in order to enter the involuntary market. I suppose they could pose a question where a group of involuntary risks leave for self insurance as well. They wouldn't be considered either voluntary or involuntary at that point: they just would disappear from the equation. If I'm wrong, someone yell at me. This is how it appeared to me.

Ruby
02-26-2005, 04:29 PM
See Text page 80 of Feldblum WC reading.

See Q35a), 1996 Exam(& its Solution).

buckeye_actuary
03-17-2005, 03:50 PM
Can someone reconcile Q24,2001 Exam5 with Q35a), 1996 Exam5 ?

Thanks

Rice
03-17-2005, 04:33 PM
I believe your question is: When risks leave the voluntary market for self-insurance, why does that increase the involuntary market burden?

Involuntary market burden = [invol prem / vol prem] * oper loss

When voluntary premium (the denominator) is decreased, the IMB is increased.

buckeye_actuary
03-18-2005, 10:06 AM
Not quite, the question is:

In Q24,2001, the risks leaving the voluntary market (for self-insurance) are not added to the involuntary market, while in Q35a), 1996 they are added to the involuntary market. Why?

Thanks

Rice
03-18-2005, 11:05 AM
I don't have that question in front of me, but I think it says that rate supression by regulators increases the involuntary market burden. This is because companies will tighten their underwriting guidelines in response to the rate suppression, forcing insureds to look elsewhere (outside the voluntary market) for coverage. I suppose the possibility exists that they could all turn to self-insurance, but the likelihood is that many will enter the involuntary market. But at least they have a choice in this problem. In the other question it specifically states that they leave the voluntary market for self-insurance.

oopsieny
03-18-2005, 02:37 PM
Not quite, the question is:

In Q24,2001, the risks leaving the voluntary market (for self-insurance) are not added to the involuntary market, while in Q35a), 1996 they are added to the involuntary market. Why?

Thanks

in the 1996 questions, the impact of the involuntary market share is given so that doesn't mean there's always an impact. in Q24 of 2001, that 5% leaving the voluntary market should be removed from the premium but it is not an impact.

kirbyk2
04-10-2005, 01:07 PM
in the 1996 questions, the impact of the involuntary market share is given so that doesn't mean there's always an impact. in Q24 of 2001, that 5% leaving the voluntary market should be removed from the premium but it is not an impact.

Am I the only one not satisfied by this explanation?

Page 80 of the paper states:

Factors that increase the [involuntary market] share include:
-risks leaving the market for self-insurance plans or excess coverage

To me, Felblum is saying that there is always an impact.

jk
04-11-2005, 10:23 AM
I'm not sure I'm seeing the problem here. When risks leave the voluntary market for self-insurance, it decreases the voluntary market premium and market share, has no impact on involuntary market premium, and increases the involuntary market share and involuntary market burden.

kirbyk2
04-12-2005, 10:02 PM
I'm not sure I'm seeing the problem here. When risks leave the voluntary market for self-insurance, it decreases the voluntary market premium and market share, has no impact on involuntary market premium, and increases the involuntary market share and involuntary market burden.

I was struggling only with the increase to the voluntary market share, but can see it using the following logic:

(inv mkt share) = (inv mkt prem) / [ (vol mkt prem) + (inv mkt prem) ]
Note: the "self-insurance" does not appear in the equation (ie: it is neither voluntary nor involuntary).

The voluntary market share would increase simply because the denominator decreases when risks leave for "self-insurance".