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Old 12-17-2018, 12:46 PM
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Default Experience Reviews in Pricing

I've seen a lot of papers and discussions about how to set up rate indications or different reserve methodologies and testing the underlying assumptions but there seems to be not as much on the actual review of indications or the underlying experience.

I understand a rate indication comprises many pieces, but is there any notable literature on different ways to analyze experience for a component? Ideally this would consider the profile of the underlying book of business to get a sense of where to target an overall rate indication in terms of adjusting pricing differentials.

Any advice would be greatly appreciated.
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Old 12-17-2018, 01:32 PM
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I don't know how experienced you are. But have you read the basic ratemaking text first before going onto things more fancy?

Werner and Modling Basic Ratemaking.
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Old 12-17-2018, 02:50 PM
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Use "Rate Classification" as a key word in your searches.

But agree with act_123 in reading the Exam 5 ratemaking material (Werner & Modlin text) first before looking to see other things in details.
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Old 12-17-2018, 03:41 PM
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Quote:
Originally Posted by act_123 View Post
I don't know how experienced you are. But have you read the basic ratemaking text first before going onto things more fancy?

Werner and Modling Basic Ratemaking.
Yes I have. I actually have a copy of it at my desk for reference because of how useful I find it.

In terms of experience, I've been doing rate indications for a year now so I have a pretty general understanding of the processes. W&M has definitely helped me so if you have anything maybe a level or two higher than that, I think that's where I'd like to start off.
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Old 12-17-2018, 05:55 PM
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Originally Posted by DamSon View Post
Yes I have. I actually have a copy of it at my desk for reference because of how useful I find it.

In terms of experience, I've been doing rate indications for a year now so I have a pretty general understanding of the processes. W&M has definitely helped me so if you have anything maybe a level or two higher than that, I think that's where I'd like to start off.
I think once you're beyond that text, you rapidly move into the territory where practices become less standardized and the details depend somewhat on the line and data available.

Some of the differences I can think of off the top of my head include:
  • Rather than using a parallelogram method to calculate on-level factors, I prefer to simply rerun historic data through the current pricing structure to directly compute premiums at current rates.
  • For certain products, changes in relativities for specific variables might be byproducts of multivariate analyses/predictive modeling, rather than traditional methods...and there's a wide range of possibilities of building that into an indications package.
  • I forget...how much does that text get into benefit level adjustments (e.g. Workers Comp), schedule mods / IRPMs, ...?

Also, there's the "art" piece: given a set of indications across states / lines / ..., and given information on market conditions, and given what "you" know about regulatory environments in different jurisdictions...what rate changes do you want to attempt, where?
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Old 12-17-2018, 06:38 PM
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Originally Posted by Maphisto's Sidekick View Post
I think once you're beyond that text, you rapidly move into the territory where practices become less standardized and the details depend somewhat on the line and data available.

Some of the differences I can think of off the top of my head include:
  • Rather than using a parallelogram method to calculate on-level factors, I prefer to simply rerun historic data through the current pricing structure to directly compute premiums at current rates.
  • For certain products, changes in relativities for specific variables might be byproducts of multivariate analyses/predictive modeling, rather than traditional methods...and there's a wide range of possibilities of building that into an indications package.
  • I forget...how much does that text get into benefit level adjustments (e.g. Workers Comp), schedule mods / IRPMs, ...?

Also, there's the "art" piece: given a set of indications across states / lines / ..., and given information on market conditions, and given what "you" know about regulatory environments in different jurisdictions...what rate changes do you want to attempt, where?
Your second point and the comment about it being an art are pretty much what I'm trying to look for. I think I understand the basics, and I'd like to tie indications together with experience reviews either by variable or state to come up with a story behind the indication.

For example, originally I would look at an indication, do an analysis of the comparisons between expected and actual loss emergence and then say "the indication went up/down due to loss emergence being X while we predicted Y"

However, I'd like to go a bit deeper than that and rather than looking at my own assumptions about loss development and instead of trying to match them accordingly to the data, I want to understand what is driving the change in the data first. Maybe a better way to phrase it is I'd like to be proactive when doing such a review, rather than reactive.

It definitely seems like this is something that comes with experience, but I would like to think someone who has that experience has outlined their thought process or maybe come up with what they consider a general process that has considerable room for tweaks when they do such a review.

Your point about market conditions is definitely something I have not considered in detail, and I would love to be more familiar with that.

Last edited by DamSon; 12-17-2018 at 06:42 PM..
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