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  #11  
Old 02-13-2018, 02:27 PM
cincinnatikid cincinnatikid is offline
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Originally Posted by zzhang View Post
Yes, This is only one factor of the model. The final result should compound the other factors.

I am working on my own spreadsheet and not sure how to use effectiveness to project earned prem in the next year.

So I was hoping someone can help me find the proper formula.
Effectiveness shouldn't change unless you are changing your mix of groups (which creates all sorts of problems). I would use the following approach in a very simplified projection with a static population (usually currently enrolled population):

2018 Premium = 2017 Premium * (1+[(2017 increase)*(1-Effectiveness)+(2018 increase)*(Effectiveness)])
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  #12  
Old 02-13-2018, 02:35 PM
zzhang zzhang is offline
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Originally Posted by cincinnatikid View Post
Effectiveness shouldn't change unless you are changing your mix of groups (which creates all sorts of problems). I would use the following approach in a very simplified projection with a static population (usually currently enrolled population):

2018 Premium = 2017 Premium * (1+[(2017 increase)*(1-Effectiveness)+(2018 increase)*(Effectiveness)])
Just want to be clear, if the mix of groups stays the same, but the effective dates of rate change are different, then the effectiveness is also changing, right?

Thanks for your formula. Is it an approximate approach? I know my formula is more complicated but does my formula also make sense? (Just want to see if I fully understand the definition of effectiveness)

Also, I sent you a Private Message.
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  #13  
Old 02-13-2018, 02:48 PM
cincinnatikid cincinnatikid is offline
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Originally Posted by zzhang View Post
Just want to be clear, if the mix of groups stays the same, but the effective dates of rate change are different, then the effectiveness is also changing, right?

Thanks for your formula. Is it an approximate approach? I know my formula is more complicated but does my formula also make sense? (Just want to see if I fully understand the definition of effectiveness)

Also, I sent you a Private Message.
Correct. I was thinking of an annual rate change that occurs at the same time every year, but if you have multiple increases (ex. quarterly trend) or increases that occur at different times of the year, you would have different effectiveness factors.
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  #14  
Old 02-13-2018, 03:11 PM
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Originally Posted by zzhang View Post
Hi,
I think you are right, but another question comes up:
Here is the situation,

rate increased 5% in 2017, with an effectiveness of 0.75; Proposed rate increases 7% with assume effectiveness of 0.6. So how to project the earned premium in 2018 (not consider other factors)

P(2018)=P(2017)/(1+5%*0.75)*(1+5%)*(1+7%*0.6)
i.e.
Step 1: P(2017) / (1+5%*0.75) :Earned premium in 2017 if no rate changed;
Step 2: *1.05 : Rate level in 2018 after 5% increase in 2017;
Step 3: (1+7%*0.6) : Actual Earned Prem in 2018 after applying effectiveness.

or something else?

Thanks
I already suggested that you talk to your manager. Now go do it!
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Also, why haven't you asked your manager about these things?
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