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  #21  
Old 03-29-2010, 10:51 AM
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Originally Posted by MountainHawk View Post
The car is the insured's property. Salvage rights are inherently theirs unless the contract stipulates otherwise.
That was my conclusion. Doesn't the insured "sign the car over" to the insurance company when the insurer proposes totalling the car? I believe the insured has the right to accept or reject the offer, and there must be something they have to sign that assigns the property over to the insurer (thus giving the insurer salvage rights in that case).

Say the insurer offers the insured $12,000 to total a car, and can get $2,000 in salvage. Should the $2,000 be netted against the $12,000? That was the point of the thread, it seems like people here believe it should be included.
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Old 03-29-2010, 11:16 AM
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That was my conclusion. Doesn't the insured "sign the car over" to the insurance company when the insurer proposes totalling the car? I believe the insured has the right to accept or reject the offer, and there must be something they have to sign that assigns the property over to the insurer (thus giving the insurer salvage rights in that case).

Say the insurer offers the insured $12,000 to total a car, and can get $2,000 in salvage. Should the $2,000 be netted against the $12,000? That was the point of the thread, it seems like people here believe it should be included.
In ratemaking, absolutely in my opinion, for all the reasons given above.
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Old 03-30-2010, 01:09 AM
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That was my conclusion. Doesn't the insured "sign the car over" to the insurance company when the insurer proposes totalling the car? I believe the insured has the right to accept or reject the offer, and there must be something they have to sign that assigns the property over to the insurer (thus giving the insurer salvage rights in that case).

Say the insurer offers the insured $12,000 to total a car, and can get $2,000 in salvage. Should the $2,000 be netted against the $12,000? That was the point of the thread, it seems like people here believe it should be included.
Yes, your understanding above is correct. Also, in the policy contract, there usually is a "subrogation clause". Similar to your explanation above, the same thing applies to subrogations -- which is much bigger deal than salvage recoveries.

Other argument for netting S&S: the financial loss information is on net basis. The revenue/expense matching principle would require the premium revenue be on the net basis as well -- that says the price should be net of S&S

As other explained, most companies run the pricing data on net basis. S&S is a big piece on some line/coverage. One may be in competitive disadvantage if not netted.

(and most important of all, if the regulators caught the problem of not netting, your filings may not be approved ... prior filings got pulled, fines ...)

Last edited by Buck; 03-30-2010 at 06:03 AM..
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Old 03-30-2010, 09:42 AM
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Other argument for netting S&S: the financial loss information is on net basis.
Actually, it's not. I spoke to the chief actuary about this when he was still here. In our state of domicile, apparently it's permissible to state loss reserve liabilities gross of salvage and subrogation. Anticipated Salvage/subro recoverables are captured somewhere else (or maybe not?); I don't really understand it. I suspect the fact that the ratemaking data and the reserving data match is not a coincidence.
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(and most important of all, if the regulators caught the problem of not netting, your filings may not be approved ... prior filings got pulled, fines ...)
The other side of this problem is that if it has been done this way for years, and I change it, the likelihood of the regulators catching it goes way up.
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Old 03-30-2010, 09:49 AM
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Anticipated salvage and subro is different. We take out actual salvage and subro, but not any anticipated values. However, I will point out that when bringing a year to ultimate, where anticipated S&S is 0, you will essentially get an ultimate estimate that is net of S&S by just backing out the paid S&S in the triangles.
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Old 03-30-2010, 06:06 PM
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I did quite a bit more research online today about this, and still haven't come up with any laws, regulations, or precedents which strongly support my case. It seems like this must be one of those "common-sense" issues, and that most insurance companies view an effective salvage/subro operation as a way to make their rates more competitive, not as a side business.

So I guess I'll have to make my case on a well-reasoned argument rather than proof and precedent. Damn.
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Old 03-31-2010, 11:34 AM
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I thought Mary Frances gave you the proof. If you don't consider it, you are violating the basic ratemaking principles promulgated by the CAS and tested on the Basic Ratemaking exam. I'm not sure what else to add to what Mary has already pointed out.
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Old 03-31-2010, 12:23 PM
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Originally Posted by Colymbosathon ecplecticos View Post
Imagine two companies writing Personal Auto. If Company A ignores salvage in its pricing and Company B doesn't, then over the long-term, Company B will insure more cars with valuable salvage, whereas Company A will tend to get cars with lower or zero salvage value. If the larger salvage value cars are better risks (perhaps their brakes work), Company A will be anti-selected.
As much as I agree with you here, part of me wonders what this would look like - which cars would have higher salvage value. Maybe new cars with an intact engine or transmission?
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Old 03-31-2010, 12:41 PM
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I thought Mary Frances gave you the proof. If you don't consider it, you are violating the basic ratemaking principles promulgated by the CAS and tested on the Basic Ratemaking exam. I'm not sure what else to add to what Mary has already pointed out.
That's what I'm doing right now. I'm considering it. If I decide not to include it, am I still violating the Principles? Mary Frances' gave me a (strong) argument for including it, but it is based on the interpretation that salvage and subrogation is one of the [negative] costs of risk transfer. Are there any other possible interpretations? I can't think of any; but the wording does not say "salvage and subrogation shall be included . . . ".

Thanks to everyone for your patience.
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Old 03-31-2010, 12:48 PM
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Originally Posted by crabber View Post
That's what I'm doing right now. I'm considering it. If I decide not to include it, am I still violating the Principles? Mary Frances' gave me a (strong) argument for including it, but it is based on the interpretation that salvage and subrogation is one of the [negative] costs of risk transfer. Are there any other possible interpretations? I can't think of any; but the wording does not say "salvage and subrogation shall be included . . . ".

Thanks to everyone for your patience.
When an ASOP tells you to consider something, you should read it as your mothers voice telling you 'you may want to consider staying home to babysit your little brother tonight'.
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