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346 Cards in this Set

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  • Back
According to Finger, List the 4 Summarized Categories of Criteria for Selecting a Rating Variable
1 Actuarial
2 Operational
3 Social
4 Legal
According to Finger, List the 4 Actuarial Criteria for Selecting a Rating Variable
1 Credibility
2 Homogeneity
3 Accuracy
4 Reliability
According to Finger, List the List the 5 Operational Criteria for Selecting a Rating Variable
1 Objective Definition
2 Avoidance
3 Verifiable
4 Administrative Defense
5 Intuitively Related
According to Finger, List the List the 4 Social Criteria for Selecting a Rating Variable
1 Privacy
2 Affordability
3 Causality
4 Controllability
According to Finger, List the List the 3 Legal Criteria for Selecting a Rating Variable
1 Constitutions
2 Statutes
3 Regulations
According to Finger, What are the 4 Ramifications of restriction if no replacement rating variable is found?
1 Rates will be leveled and subsidies will be created
2 Availability will diminish
3 Profit and solvency may be affected if the book is mal distributed
4 Less accurate pricing may reduce accident prevention incentives
According to Finger, What are the 5 methods to obtain more data or more reliable data in order to determine classification relativities
1 Use more years of data
2 Use data from several states
3 Using claim counts
4 Using basic limits data or otherwise limiting the size of claims
5 Using partial premiums
According to Finger, What is the Definition of Efficiency
Efficiency is defined as a measure of accuracy of a classification system.
According to Bouska, List the 4 characteristics that a good exposure base should have
1 An Accurate measure of the exposure to loss
2 Easy to determine for the insurer
3 Difficult to manipulate by the insured
4 (Bouska adds) Immune to manipulation by underwriters
According to Bouska, List the 3 types of problems in the selection of an Exposure Base
1 A Temporal Mismatch between Expected Losses and an Acceptable Exposure Base (Products Liability or claims made)

2 Interpretive Mismatch (Polution liability "tons of waste disposed"

3 Complexity of Hazard (D&O)
According to Bouska, What are the 2 steps in the process of selecting an exposure base?
1 Analyze the coverage offered and the coverage trigger to determine what factors influence the expected losses
2 Those which are usable will be divided into 2 groups: the first group, consisting of 1 factor, will be the exposure base, and the second group will be the rating variables, which influence the projected expected losses indirectly by affecting the rate
According to Bouska, What are 2 alternative rating plans used for LARGE RISKS that modify the usual exposure Base
1 Composite Rating Plan
2 Loss-Rated
According to Bouska, What are 2 serious problems caused by varying company practices?
1 The poor coding of Exposure Information
2 The manipulation of Exposure estimates can be "low balled" causing a mismatch in recording premium and loss
According to Bouska, Summarize the OREGON STUDY, "Premium EQUITY BY Employer Group"
Was a WC study, focusing on small to medium companies.
The study found no bias against Union/High Wage small employers, but did for medium size employers
NCCI had Loss Ratio Adjustment Program for Construction Classes to make the experience rating plan more responsive to company's 3-year Loss Ratio
According to Bouska, What is the distinction between a Rating Variable and an Exposure Base?
An Exposure Base has
a) a uniform and continuous multiplicative relationship to E[loss costs] and rates
b) has a simple and obvious relationship to losses

A rating variable has a discrete nonlinear relationship with E[loss]
According to Bouska, Summarize ISO's GL study, "ISO's Commercial Lines Policy and Rating Simplification Project"
1) GL Exposure bases changed to Gross Sales instead of Area/Receipts in some sublines

It simplified Rating
It made the Exposure Base Inflation Sensitive
It made the Exposure Base Sensitive to Economic Cycles
According to WC Feldblum, List the 4 factors that affect class refinement
1 Competition
2 Coverage Costs
3 Larger Markets
4 Technology
According to WC Feldblum, List the 3 causes that impact Loss Cost Trends
1 Economic Inflation
2 Social Inflation
3 Other - systematic non-monetary changes that impact insurance values (changes in economy/work environment)
According to WC Feldblum, What are the 6 things that Statuatory Benefit Revisions affect in Workers Comp
1 Claim Filing
2 Duration
3 Mix of Claims
4 Non-compensation Medical Benefits
5 Attorney involvement
Compensable Injuries and Diseases
According to WC Feldblum, List the 5 NCCI programs designed to Reduce the competitiveness of the Pools (depopulating them)
1 Higher Premium Deposity Requirements for Involuntary Risks
2 Payroll Verification Plans
3 Elimination of Premium Discounts
4 Premium Rate Differentials between voluntary and involuntary markets
5 Two loss-sensitive rating plans, ARAP and ARRP, to reflect adverse loss experience
According to WC Feldblum, What are the 6 things that the disparity between wage inflation and benefit trends stem from?
1 Technological Advances in Medical Treatment
2 Increasing utilization of medical services
3 PatientClaims shifting and Physician Cost shifting
4 Lengthening of disability durtations
5 Increasing Frequency and compensability of costly psychological injuries
6 Greater Attorney Involvment
According to WC Feldblum, List 3 reasons why Large Risks have lower loss ratios than small risks
1 Larger Risks have More incentive to reduce loss expenses since their size gives their own loss experience more credibility in Experience Rating
2 LArge Expenditures required to implement safety programs are more cost effective for larger risks
3 Post Injury and Back-to-Work programs may not be offered by smaller risks
According to WC Feldblum, List 3 reasons for using Total Payroll as the exposure base
1 Accuracy: it may be more predictive of the losses resulting from providing both indemnity and medical benefits
2 Inflation Sensitive
3 Reliability: Since it is used for federal income Tax purposes, it is available and reliable
According to WC Feldblum, List the 2 factors for INCREASING the Involuntary Market Burden
1 Risks leaving the voluntary market for self-insurance plans or excess coverage

2 Regulatory supression of voluntary market rates
According to WC Feldblum, state 3 facts about a law ammendment that changes the payment base from a gross earnings to net earnings
1 Within any tax band, if the minimum OR maximum limitation affects all insureds, before and after the change, there is no direct effect
2 Within any tax rate band, the effect of the change is uniform accross wage rates if the minimum AND maximum limitations do affect the reimbursment, either before or after the change
3 The direct effect can be quantified using a wage distribution table and an income tax schedule
According to WC Feldblum, List the 3 factors for REDUCING the Involuntary Market Burden
1 Higher Premium Deposit Amounts
2 Elimination of Premium Discounts
3 Payroll Verification plans
According to WC Feldblum, list 1 reason AGAINST using total payroll as an exposure base
High wage paying employers may perceive the exposure base as unfair and are more likely to self-insure, because medical benefits are not directly related to wage level.
According to WC Feldblum,list 3 reasons why higher unemployment may increase average claims severity
1 Higher unemployment levels lead to an increase in utilization, since unemployeds people seek whatever income they can get and other people want to extend their benefits because fearing of not having a job to return to
2 Higher unemployment makes people scared to file small claims for fear of job loss
3 The experience and injury mix changes: more older/experienced (low freq. high sev.) employees are returned; and Younger (high freq./low sev.) employees are laid off
According to WC Feldblum, what are the direct and indirect effects of legislative change that increases the statutory WC indemnity benefit 15%
Direct- More indemnity payments will be paid even if reported claims, avg duration, etc do not change. Effect may not be exactly 15% due to max/min benefits. Avg WC loss will increase

Indirect- Increase in claims reported and claim duration. More incentive for old employees to use WC as early retirement
According to Finger, Describe 2 ways an insurance company can react to counter the effects due to the abolition of a rating variable.
1 Insurers have incentive to, and should try and find a replacement variable
2 Insurers may withdraw from marketing to certain groups or refuse to insure them
According to McClenahan, The 3 goals of ratemaking are to determine rates which will provide ____,___, and ____
1 Sufficient Funds
2 Adequate MArgin
3 Reasonable Return
According to McClenahan, List the 4 factors affecting the selection of an Exposure Base
1 Reasonableness
2 Ease of Determination
3 Responsiveness to Change
4 Change in Historical Practice
According to McClenahan, Describe the Distinction between the profit factor and the contingency factor
The profit factor is based generally on some target rate of return, and the contingency factor addresses the potential for adverse deviation
According to McClenahan,Why are Other Aquisition Expenses related to Written Premium, while General Expenses are related to Earned Premium
Other Aquisition Expenses are assumed to be incurred mainly at the begining of the poilicy, so it makes more sense to relate it to Written Premium

General Expenses would continue to be incurred even if policies ceased to be written, so it makes more sense to relate to EP
According to McClenahan, what is a pos and neg of Report Yr. What LOB should use this
Convenient for claims made pricing since # of claims reported are frozen at the end of the year. LOB- claims made
According to McClenahan, what is a pos and neg of Policy Yr. What LOB should use this
Data not available until 2 calendar years after first policy written. Data more mature but the delay in availability makes it less responsive to identifying change. LOB – Comm GL – more stable
According to McClenahan, what is a pos and neg of Calendar Yr./Acc Yr What LOB should use this
Data is readily available at the end of the yr. Acc Yr losses at the end of the first yr are very immature. LOB- Auto Liability- responsive to change
According to McClenahan, what is a pos and neg of Calendar Yr. What LOB should use this
Available in annual statement pg 14. Susceptible to changes in reserve level adequacy for yr to yr. LOB- Auto PD pricing – short tail
According to McClenahan, what is the diff between LRM and PPM
PPM 1 Develops indicated rates
2 Based on exposure
3 does not require existing rates
4 does not use on-level prem

LRM 1 Develops indicated rate change
2 Based on Prem
3 Requires existing rates
4 Uses on-level earned premium
According to McClenahan, what is skimming the cream vs adverse selection
Skimming the cream is when a rate fails to reflect a positive characteristic and adverse selection is it fails to reflect a negative characteristic
According to McClenahan, List the 3 causes of Loss Development
1 Development on Known Claims
2 Newly Reported Claims
3 Re-opening of prior closed claims
According to McClenahan,why is it appropriate to both Develop and Trend Losses?
Because ther is no double counting of severity trend and loss development factors in the ratemaking process

The Trend factor reflects the severity trend from the midpoint of the experience period to the midpoint of the exposure period

The loss development factor reflects the underrlying severity trend from the midpoint of the exposure period to ultimate
According to McClenahan,Briefly describe each of the 3 methods available for the review of Imcreased Limits factors
1 A severity Trend Factor is applied to each closed claim from the date of closure to the effective period for the ILF's
2 Loss Development patterns by layer
3 A theoretical size of Loss Distribution is fit to individual loss data
According to Graves and Castillo, Give 5 major changes to Premises and Operations ratemaking since McManus's 1980 Update
1 Inclusion of Multiline datain the rate level review
2 Loss Development by state
3 Use of Bailey Min. Bias to determine Type of policy and class group relativities
4 Changes were made to the standards for full credibility by subline
5 Changes were made to the number of policy years used
According to Graves and Castillo, What are the 4 advantages of using a Monoline-ML database?
1 More Stable Rate level indications
2 Creation of more accurate GL Trend factors
3 Creation of more stable loss development factors
4 Resolves regulator concern that only a portion of the data was being used
According to Graves and Castillo, How many years of experience do you use in the indication?
3 policy years of experience
According to Graves and Castillo, What are the weights assigned to the years
50% 30% 20%
According to Graves and Castillo, Dou you use BL or TL losses, prem, ULAE, ALAE
Use BL losses (except in calculation of ULAE factor)
Use BL Premiums
Use Total ALAE
Use Total ULAE
According to Graves and Castillo, State 2 reasons why it is appropriate to use Basic Limits data when calculating a rate level indication
1 Basic limits data is less effected by single large severity events (catastrophes)
2 Basic Limits data is not affected by shifts in policy limit distribution
According to Graves and Castillo, why is appropriate to both Trend and develop losses
Trending projects losses from the midpoint of the experience period to the midpoint of the exposure period.
Loss Development considers a different period in time. Losses are developed from the midpoint of their exposure period to their ultimate value.
According to McClenahan, why is it important to use base exposures instead of actual exposures
It corrects for the varying exposure levels in the non-reviewed relativities
According to Graves and Castillo, what is the Implicit Package Modification Factor (IPMF)
IPMF is the discount, implied for a particular coverage, written on a package policy rated with a given published Package Modification Factor (PMF)
According to Jones, what are the 3 items that can reduce the usefulness of the historical loss ratio?
1) If the future book of business is significantly different from the past book of business, due to either cancellations, nonrenewals, or writing new business, this could affect the expected loss ratio.
2) The economic, legal, and social environments of insurance are constantly changing, affecting loss severity and loss frequency.
3) Changes in an insurer's rate levels will affect average premiums.
According to Jones, what are 4 items that can cause the future avg. premium level to differ from the past avg. prem level?
1) Past rate changes: one-time, abrupt, and measurable
2) Past rating plan changes: one-time, abrupt, and measurable
3) The existence of rating plans which change the premium level over time: measurable, gradual, and continuous
4) Past and expected future shifts in the mix of business: gradual and continuous
According to Jones, what are 2 methods of adjusting historical experience for changes that affected the average premium level?
1) A direct adjustment
2) Apply premium trend
According to Jones, What is the advantage of the 2-step trending procedure over the 1-step trending procedure?
The 2-step method recognizes situations where a singl;e annual premium trend may not be appropriate for each year in the experience period.
According to Jones, What are the 2 trending periods in the two step trending procedure?
Step 1: Trend the premium to the midpoint of the latest trend data point in the series
Step 2: Trend the Premium from the midpoint of the latest trend data point to the average written date for future the future policy period
According to Jones, Discuss the appeal of using average Written trend vs. Average Earned Trend in a 2-step Trending procedure.
A trend analysis based on average written premium will have a longer trending period for step 1 and a shorter period for step 2. This adds to the appeal of using Ave. Written, in that the length of the inherently uncertain projection period is minimized.
According to Jones, what are 2 challenges in the task of adjusting for the changes affecting the average premium level?
1) Choosing an adjustment method
2) Avoid double counting
According to Marker/Mohl, Give 3 situations in which a tail policy (in claims-made) is able to provide necessary coverage
1) Insureds entering retirement
2) Death and Disability situations
3) Changing Insurance Carriers
According to Marker/Mohl,List the 5 principles of Claims-Made Rating
1) A CM should always cost less than an occurrence policy, as long as claim costs are rising
2) Whenever there is a sudden, unpredictable CHANGE (positive or negative) in the underlying TREND, CM policies priced on basis of prior trend will be closer to the correct price than the pricing of occurrence policies
3) Whenever there is a sudden, SHIFT in the REPORTING pattern, the cost of CM coverage will be affected very little if at all, relative to occurrence coverage.
4) CM policies incur no liability for IBNR claims so the risk of reserve inadequacy is greatly reduced. If the claim is not reported, it is not covered. The IBNR need for a CM policy is always 0.
5) The investment income earned from a CM policy is substantially less than under an occurrence policy. The longer the reporting lag or the shorter the settlement lag, the greater the difference will be.
According to Schofield, What are 3 the 3 assumptions made in the study note?
1 All Quantities are accurately measured
2 All Rates are at an adequate level
3 Rating plans are multiplicative
According to Schofield, What are the 2 methods of calculating Fixed Expenses (policy/Exposure)?
1 Expense fee Method (per exposure basis)
2 Worker's Comp Method (per policy basis)
According to Schofield, When is it good to use the Expense Fee Method?
In the Expense Fee Method, Fixed and Variable Expenses are treated on a per Exposure Basis.

It should be used when the range of exposures written on a policy is small (Ex: Personal Auto)
According to Schofield, When is it good to use the Workers' Comp Method?
In the Worker's Comp Method, Fixed and Variable Expenses are treated on a per Policy Basis.

It should be used with a wider range of exposures written on a policycan exist (Ex: Worker's Comp)
According to Schofield, In the McClenahan Pure Premium Method, on which basis are expense fees calculated?
Per Exposure Basis
According to Werner, List the 3 considerations when deciding whether to calculate fixed expenses on an exposure or a policy basis
1) The range of exposures on a policy
2) The correlation of overhead expenses with policy exposures
3) Current company practices with regard to allocation of expenses
According to Werner, what are 3 items which can cause an excessive or inadequate overall rate indication
1) Rate changes
2) Significant premium trend
3) Countrywide expense ratio usages
According to Werner, what are 5 concerns that remain after using the proposed procedure?
1) Splitting expenses
2) Average expense levels by location
3) Fixed expenses that vary slightly with premium
4) Fixed expenses that vary by other statistics
5) Economies of scale
According to Werner, what are the 4 things that may affect the selection of a provision for each expense category?
1) Future changes in expenses 2) A one-time shift in the expense levels
3) Non-recurring expense items
4) State restrictions on expense recovery
What are the 5 expense categories used by Werner?
1) General Expense
2) Other Acquisition
3) Commissions and Brokerage
4) Taxes
5) Licenses & Fees
According to CAS, What are the 4 items that the Standard of Practice states that the actuary should consider in trending model evaluation?
1) the historical data being used
2) The success of the model in making prior projections
3) The statistical goodness of fit of the model to the historical data
4) The impact of any sudden, nonrecurring changes (tort reform) not yet incorporated in the data
According to CAS, What are the 4 specific areas of evaluation of trending procedures recommended by Standard 13
1) Those established by precedent or common usage in the actuarial profession
2) Those used in previous analyses
3) The choice of the database and methodology, with emphasis given to the credibility of the data
4) The effect of known biases or distortions (Cats, Seasonality, Policy limits etc.)
According to CAS, What is social inflation and give 2 examples of it
It’s the impact on insurance costs from changes in claim consciousness, court practices, judicial attitudes and other non-economic factors. Examples:
1) Changes in claim consciousness spark insureds to file more claims
2) Changes in judicial attitudes results in more liberal awards for plaintiffs
According to CAS, What are the 3 sources of data that actuaries rely on for trend selections
1 Company data
2 Insurance data
3 Non Insurance data
According to CAS, List the 4 principles of P&C Insurance Ratemaking
1) A rate is an estimate of the expected value of future costs
2) A rate provides for all costs associated with the transfer of risk
3) A rate provides for the costs associated with an individual risk transfer
4) A rate is reasonable and NOT excessive, inadequate, or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future costs associated with an individual risk transfer
According to CAS, what are the 3 desirable features for exposure units to have
1 vary with hazard
2 be practical
3 be verifiable
According to Boor, what are the 4 types of issues to consider when selecting the complement
1) Practical issues
2) Competitive market issues
3) Regulatory issues
4) Statistical issues
According to Boor, what are the 6 desirable qualities for the statistic which is assigned the complement of credibility
1) unbiased
2) accurate
3) independent
4) available
5) easily computed
6) explainable relationship
According to Boor, what are the 3 desirable and 3 undesirable characteristics of using competitor rates for a credibility comp
Desirable 1 Independence Prediction error in competitor rates is independent of loss costs 2 Availability 3 Process Error – More dataUndesirable 1 Explainable Relationship 2 Bias – might be biased due to different underwriting and Desirable 1 Independence Prediction error in competitor rates is independent of loss costs 2 Availability 3 Process Error – More dataUndesirable 1 Explainable Relationship
2 Bias – might be biased due to different underwriting and claim practices
3 Computation
According to Brown & Schmitz, what are 3 reasons for use of small deductibles
1) To avoid expenses associated with processing and investigating claims for a small payment
2) Most insureds can afford to pay a small deductible (since it does not have a significant impact on the insured's financial condition)
3) Can discourage the filing of small nuissance claims and frivolous claims and also controlling moral hazard
According to Brown & Schmitz, what are 4 reasons for the increased use of large deductibles
1) Insurance cost savings to the insured
2) Loss control incentives for the insured
3) Reduced residual market burdens for the insurer
4) Cash flow advantages to the insured
According to Brown & Schmitz, What are 5 considerations when pricing a deductible policy? How are...
1 the insurer's net losses affected?
2 ALAE costs affected?
3 other expenses affected? (should larger relative profit/risk margin be charged for the deductible policy?
4 prices impacted give that policy cash flows are affected
5 insured bankruptcy situations handled?
According to Brown & Schmitz, what are 3 additional fixed expense categories an insurance company is subject to issueing deductible policies?
1 billing insureds for deductible payments
2 monitering payment of deductibles
3 pursuing in some cases deductible funds through collection agency/lawsuit.
According to Feldblum PAP, what are 3 attributes that motivate asset share pricing
1) commissions
2) cancellations
3) loss costs
According to Feldblum PAP, what are 4 reasons why asset share pricing is not common
1) The data needed are not always available
2) Casualty pricing techniques are still somewhat undeveloped
3) The casualty insurance policy allows great flexibility in premiums and benefit levels
4) Liability claim costs are uncertain, both in magnitude and in timing
According to Feldblum PAP, what are 3 things that the correct rate relativities depend on
1) Classification system
2) Average losses and persistency rates by classification
3) Strength of loss ratio improvement by policy year
According to Feldblum, what are the 4 factors that affect the differing ratemaking philosophies of life vs. P&C?
1) Cancellation
2) Claim Costs
3) Expenses
4) Level Premiums
According to Feldblum PAP, what are the 4 reasons for the relationship between the duration of an auto policy and the claim frequency for that policy?
1) Experience
2) Youth
3) Transience
4) Acquisition of vehicle
According to Feldblum PAP, Why is it not appropriate to assume the same pattern of persistency rates for both direct writers and independent agency companies?
Direct writers have high retention rates because they offer low premium rates and provide renewal premium discounts. Many independent agency companies have low retention rates because the agent can move the insured to whichever company has the lowest rates.
According to Feldblum PAP, explain how assett share pricing models and property and casualty insurance ratemaking models differ in their consideration of the profitability of an insurance policy.
Traditional P&C ratemaking consider only the profitability of the future policy period.
Assett share pricing models look at profitability over the life of the policy, taking into account policy persistency patterns.
According to Lange, what 3 factors tend to increase with each layer of loss
1) LDFs
2)Trend
3) Risk or security loadings
According to Lange, list the four difficulties involved in ascertaining the profitability of writing increased limits of liability
1) Inflationary trends have a substantially different impact in the increased limits area
2) Large liability losses may not be settled for many years
3) Since IL's losses are in the tail of the distribution of losses by size, considerable statistical variation exists
4) IL's premiums are generally lumped together with BL's premiums and other unrelated charges
According to Lange, what are the 2 advantages to his method for calculating ILFs over the Pure Premium Method?
In PPM, since IL’s data is of lesser volume and subject to greater statistical variation, the resulting PPs would have little credibility
2 The PP approach is not useful in testing the present rating procedure in which IL's charges are expressed as a function of BL's rates.
According to Lange, what are the advantages to his method for calculating ILFs over the Loss Ratio Method?
In LRM, premiums must be known with accuracy, but IL and BL are usually clumped together. Even if one were to reconstruct separate IL premiums the utility of the resulting loss ratios would be low.
Increased limit rates are a function of BL limits rates so the IL experience cannot provide an indication of the relationship between IL losses and BL losses
According to Lange, list 2 reasons why IL losses increase more rapidly than BL loss trends
1) For loss> BLs, the whole effect of the trend is in the excess portion of the claim, with 0 effect on the BL portion
2) A rising cost trend will cause an increased freq. of ILs losses since additional claims will break through the lower boundary of the IL layer and become new excess claims
According to Lange, list 2 reasons why increased limits losses increase more rapidly than basic limits losses
1) For a loss greater than the Basic limit, the whole effect of the trend is in the excess portion of the claim, with 0 effect in the basic limits portion.
2) A rising cost trend will cause an increased frequency of increased limits losses (additional claims will bnreak through the basic limit)
According to Lange, Basic limits rates include only a provion for the expenses of the direct primary insurer; why i sthat a problem?
Unless some provision is made for the expenses of the reinsurer, the increased limits charges would be inadequate
According to Tiller, what are 6 attributes of a good individual risk rating system
1) Honest
2) Useful
3) Simple
4) Balance
5) Understandable
6) Stable
According to Tiller, what are the 3 types of prospective individual risk rating plans
1) Schedule Rating
2) Experience Rating
3) Composite Rating
According to Tiller, what are the 3 qualities the credibility must have when weighting the actual vs Expected LRs
1) 0 < Z < 1
2) Cred should increase as the size of the risk increases
3) The % charge for any loss of a given size should decrease as the size of the risk increases
According to Tiller, what 5 elements are included in basic premium
1) Profit and Cont
2) LAE in excess of those provided by the LCF
3) Acquisition and service costs
4) Net charge for limiting the retro prem between the min and max
5) Risk control services, prem audit, and general administration of insurance
According to Tiller, what is the purpose of the D-ratio in the experience rating plan
It adjusts the expected basic limits losses for the impact of the Maximum Single Limit, by reducing the expected basic limits losses and ALAE by the proportion of expected loss and ALAE higher than the MSL
According to Tiller,Briefly describe internal manipulation with regard to individual risk rating systems and give an example.
Internal manipulation occurs when an entity to which costs are being allocated can influence the cost allocation. Ex: an entity that sets its cases reserves (used in individual risk rating calculation)
According to Tiller,Briefly describe external manipulation with regard to individual risk rating systems and give an example.
External manipulation occurs when some agency, other than the entity to which costs are being allocated, influences the cost allocation. EX: marketing manager overrides the pricing results of the individual risk rating calculation without justifiable cause
According to Tiller, explain why the retrospective rating process tends to produce back and forth payments between insurer and insured?
Retrospective premium adjustments that modify the premium based on loss experience cause back-and-forth paymernts.
The first adjustment (typically 18 month after inception is ussually a refund of premium because minimal loss experience is reported, Subsequent adjustments typically require more premium as losses develop.
According to Fitzgerald, what are the 5 major limitations in determining loss costs in states that have significant hurricane exposures
1)Not enough historical insurance data
2)Over reliance on long term premium and loss information
3)Grouping states into regions can mask hurricane potential
4)Individual storms can have a disproportionate impact
5)Not all portions of a state are equally exposed to hurricanes
According to Fitzgerald, what is used for cred weighting for modeled loss costs
No credibility weighting is performed, because modeled territorial loss cost is considered fully credible. Credibility is taken into account only for the non-hurricane loss costs
According to Fitzgerald, what are the 4 steps in calculating net MDRs
1) Express damage ratios on a 1st dollar basis
2) Derive a beta cumulative distribution function
3) Calculate a net MDR for EACH event
4) Calculate a net MDR for ALL events
According to Fitzgerald, what are the 6 limitations of the hurricane model
1) Limitations of Meteorological History
2) Limitations of Understanding Hurricanes
3) Limitations of Exposure Inventory
4) Demand Surge
5) Limitations of Damageability Information
6) Limitations of the Model in specific pricing situations
According to Fitzgerald, what are the 4 other uses of the model
1) Pricing Optional Coverages
2) Development of Territory Definitions
3) Building Code Effectiveness Grading
4) Risk Load
According to Fitzgerald, List 3 key partamters in RMS model that pertain to the hurricane event
1 Observed Central Pressure Differentials (fit to Weibull distribution)this is the key parameter of the stroms strength
2 Observed Forward velocities (lognormal)
3 Track Angles (normanl distribution
According to Fitzgerald,why is the risk load important?
The distribution of losses around the expected value is often just as important as the expectation itself. The distribution around the average determines the degree of risk underlying the coverage. The model provides this information!
According to Fitzgerald, what is one impootant advantage of the hurricane Model?
It provides more accurate estimates of hurricane losses by territory within a state. The prior territory reviews were limited by the sparsness of the data.
According to Fitzgerald, state 3 reasons why full credibility is given to the model
1 The MDR's are based on all available meteorlogical data over the past century
2 There is no credibility standard for the volume of data needed to determine reliable estimates from the model
3 There is an absence of a source to use as the compliment of credibility
According to Fitzgerald, Explain why you should give caution about this assignment of credibility
Since the hurricane model determines the hurricane loss cost by fitting the parameters of a hurricane to probability distributions, the user should be aware that there is parameter uncertainty in the results
According to Anderson, what are 7 assumptions that simplify the general pure premium rate equation?
1) Premium rates are equitable and just adequate
2) All insured properties are homogeneous
3) The rate determinants (frequency and severity) are known and stable
4) Losses are precisely adjusted
5) Each insured carries no ohter property insurance
6) There is no interest on the pure premium collected
7) Each policy has no more than one loss per period.
According to Anderson, What are the 3 forms that the designated insurance represented in the numerator of the coinsurance apportionment ratio may take?
1) The face amount of the policy requiring insurance
2) The total face amounts of the insured's applicable policies
3) Under provisional reporting form policies, such as on inventories, full insurance on the property values last reported before a loss.
According to Anderson, when does a premium reversal occur?
A reversal occurs if the percentage decrease in gross premium rate is greater than the percentage increase in the policy face
According to Anderson, do the rates for percentage coinsurance requirements vary by policy size?
NO
According to Anderson, what are 3 criteria that the coinsurance rate tables should satisfy?
1) A wide range of coinsurance percentages should be offered at separate rates.
2) Premium reversals should not occur, inevitably, at the borders between bands of premium rates.
3) Whenever losses less than the policy face are possible, the pure premium rate should fall as the policy face increases.
According to Kelly, what is a disadvantage to the company of offering GRC?
It’s dependence on it inspections, inflation coverage, etc. to ensure that the dwelling is initially and ultimately insured at full replacement cost
According to Kelly, what is an adjustment clause and what is it’s purpose on the homeowners policy?
Adjustment clauses are designed to automatically update the dwelling coverage amounts at policy renewal for inflation
According to Kelly, what are the 6 potential rating impacts of changing levels of insurance to value?
1) The additional premium (per policy) generated by larger coverage amounts from actions such as inspections and reinspections.
2) The additional total, and near total, losses which accompany the larger coverage amounts generated by additional inspections and reinspections.
3) The reduced premium (in total) from increased numbers of cancellations and non-renewals.
4) The reduced claim payouts (in total) from increased numbers of cancellations and non-renewals
5) The reduced claim payouts (per policy) if broader reinspection programs result in suggestions to reduce the risk of loss which are then carried out.
6) Changes in expenses.
According to Prevesto, what are the 4 date fields collected on each transactional record?
1) Accounting
2) Inception
3) Effective/Expiration
4) Date of Loss
According to Prevesto, what are 3 examples where coded as rated may not be followed?
1) Extra detail collected
2) Regulatory requirements for a data element to be captured and maintained
3) Less detail collected
According to Prevesto, what are the 3 amount fields collected for the ISO statistical plans
1) Written premium
2) Loss indemnity
3) Loss-ALAE
According to Prevesto, what are the 4 additional data elements collected for the lines of insurance subject to natural disasters?
1) zip code
2) day of loss
3) expanded cause of loss detail
4) Building Code Effectiveness Grading Schedule code
According to Prevesto, what are the 3 areas that regulators monitor and regulate in the insurance business?
1) Financial solvency and solidity of insurance companies
2) Market conduct
3) Rate regulation
According to Prevesto, Describe "Summary-Based" Statistical Plans
"Summary-Based" Statistical Plans - data is summarized by line of business, state, class and by coverage and sent to the statistical agent

The purpose of "summary Based" is to satisfy regulatory requirements
According to Prevesto, Describe "Transaction-Based" Statistical Plans
"Transaction-Based" Statistical Plans transaction level records are sent to the statistical agent. These records include the dollar amount of the premium and substantial information about risk characteristics. On th eloss side, transaction records eveytime a loss is paid, including partial payments an the establishing of a case reserve.

The purpose of transaction based statistical plans is to collect more detailed information to support the business need for data.
According to Prevesto, Define "Code as rated"
Means there is a direct correlation between the statistical coding of data that is collected to rate the policy and rating criteria. Example Homeowners: COVA, Deductible, policy form
According to Prevesto,State the 2 braod categories of Exposure Bases used for General Liability.
1 Fixed Exposure Base - The exposure base is a definate known quantity at the inception of the policy EX: square feet
2 Variable Exposure base, EX: gross sales
According to Prevesto, what are the two main needs a statistical plan is developed to provide
1 Regulatory Purposes
2 Business purposes
According to Moncher, list the 5 major data collection programs at NCCI
1) Annual Financial Call Data
2) WC Statistical Plan Data (WCSP)
3) Detailed Claim Info Data (DCI)
4) Policy Issue Capture System Data (PICS)
5) Residual Market Data
Which two data collection programs are the primary data sources used for Worker's Compensation Ratemaking?
1) Annual Financial Call Data
2) WC Statistical Plan Data (WCSP)
According to Webb, give the 3 benefits participants get through insurance
1) Reimbursement of losses
2) Reduction of uncertainty
3) Services provided by the insurer to reduce the possibility of loss
According to Webb, list the 4 things in which the insurer accomplishes the principle function
1) Marketing
2) Loss control
3) Underwriting
4) Premium auditing, and claims handling
According to Webb, list the 4 things which a property and liability business in the U.S. can be classified by
1) Legal form of ownership
2) Place of incorporation
3) Licensing status
4) Marketing or distribution system used
According to Webb, what are the 4 types of participants in the risk transfer process
1) Risk Manager
2) Consultants
3) Insurance Agents and Brokers
4) Insurers
According to Webb, what are the 8 insurer functions that facilitate the risk transfer process
1) Policy Contract Development
2) Pricing
3) Marketing
4) Underwriting
5) Claim Adjustment
6) Loss Control
7) Reinsurance
8) Investments
According to Webb, what are the four types of distribution systems
1) Independent Agency System
2) Exclusive Agency System
3) Direct Writer System
4) Direct Response System
According to Webb, what are the 7 factors to consider when selecting a distribution system
1) Geographic location
2) Expertise and Reputation of Producers
3) Nature of Existing Business
4) Ability to Service Products
5) Markets to be Targeted (Buyers to be Reached)
6) Insurer Characteristics
7) Degree of Control Required or Desired
According to Webb, what are the 3 widely used bases for transmitting premium to the insurer
1) the item basis
2) the statement basis
3) the accound current basis
According to Webb, what are 3 types of proprietary insurers
1 Stock Companies
2 Lloyd's
3 Insurance Exchanges

Proprietary Insurers are formed to make a profit for their owners
According to Webb,Describe Lloyd's
Lloyd's of London is not an insurance company. It is a marketplace, similar to a stock exchange. The insurance is written on behalf of individual or corporate members. The insurance is backed by their entire personal forunes. Each member belongs to one ore more syndicate, and delegateds the day-to-day management to the syndicate manager
According to Webb,List the 4 types of Cooperative Insurers
1 Mutual Companies
2 Reciprical Exchanges
3 Fraternal Organizations
4 Other (Captive Insurers, Risk Retention Groups, Purchasing Groups)

Cooperative Insurers are not necessarilty formed for profit. Owned by the policyholders, ussually formed to provide insurance at a minimal cost.
According to Webb, Describe Pools/Associations
Consist of Several insurers not otherwise related. These are ussually used to insure risks that individual companies are not willing to cover alone.
According to Webb, List 8 types of Federal Insurance
1 Deposit Insurance for Banks
2 Export Credit Insurance
3 "Alll risks" Crop Insurance
4 Flood Insurance
5 Crime Insurance
6 Insurance against expropriation of foreign investments
7 Mortgage Insurance
8 Life Insurance for some veterans of armed forces
According to Webb, What are 3 alternatives ot risk transfer
1 risk avoidance
2 risk retention
3 loss control
According to Webb, What are the 6 principal steps in the risk management process?
1 Identify loss exposures
2 Analyze loss exposures
3 Examine available risk managment techniques
4 Select Technique to be used
5 Implement technique
6 Moniter Results and implement necessary changes
According to Webb, list 7 functions performed by agents
1 prospecting - finding new clients
2 sales
3 risk analysis
4 policy issuance
5 collection of premiums
6 claims handling
7 consulting
According to Webb, list the 8 major staff underwriting activities
1) Formulation of underwriting policy
2) Evaluation of Experience
3) Research and development of Coverages and policy forms
4) Review and revision of Rating plans
5) Conduct of underwriting Audits
6) Education and training
7) Participation in industry associations and bureaus
8) Preparation of Underwriting guides and bulletins
According to Webb, list the 5 major line underwriting activities
1) Selection of insureds
2) Classification
3) Determination of the proper Coverage
4) Determination of the appropriate Rate or price
5) Producer and Policyholder service
According to Webb, What is the definition of Adverse Selection
Occurs when applicants for insurance present a higher than average probability of loss than is expected from a truely random sample of all aplicants.

Example Flood Insurance
According to Webb, What are the 3 principle dimensions of an insurer's underwriting policy?
1 Lines of business and classes to be written
2 territories to be developed
3 forms, rates, and rating plans
According to Webb, List 4 major constraining factors of underwriting policy
1 capacity - relationship between premiums written and policyholder surplus
2 regulation -
3 personel
4 reinsurance
According to Webb, what are the 4 specific areas on which property underwriters focus
1) Construction
2) Occupancy
3) Protection
4) External Exposures
According to ISO, what are the 6 classes of building construction
1) Class #6 - fire resistive
2) Class #5 - modified fire resistive
3) Class #4 - masonry noncombustible
4) Class #3 - noncombustible
5) Class #2 - joisted masonry
6) Class #1 - frame
According to Webb, what are the six categories of occupancies
1) Habitational
2) Office
3) Institutional
4) Mercantile
5) Service
6) Manufacturing
According to Webb, as part of private protection, what are the 5 major detection systems
1) A guard system with a clock system
2) A private patrol service
3) Smoke and heat detectors
4) An automatic local alarm
5) A central Station alarm or remote station system
According to Webb, what are the 4 categories of private fire suppression
1) portable extinguishers
2) standpipes and hoses
3) automatic sprinkler system
4) private fire brigades
According to Webb, what are the 3 measures used to estimate the largest loss a property is likely to produce
1) Policy amount
2) Amount subject
3) Probable maximum loss (PML)
According to Webb, list 3 groups of factors affecting frequency and severity that vary by occupancy
1 Sources of ignition or fire causes
2 combustibility
3 damageability
According to Webb, list 9 "construction" things to consider when underwriting property
1 Types of load bearing members of construction (6 classes)
2 Interirior finish
3 Insulation
4 Roofing
5 Age
6 Building height
7 Fire Divisions
8 Building Openings
9 Duilding Codes - enforcement
According to Webb, list 3 "Occupancy" things to consider when underwriting property
1 sources of ignition (freindly fires, friction, electricity, exothermic reactions)
2 combustibility
3 damageability - to determine PML
According to Webb, list the 4 common hazards associated with Occupancy
1 housekeeping (uncollected litter, storage, disposal)
2 heating equipment
3 electrical equipment
4 smoking materials
According to Webb, list the 2 special hazards associated with occupancy
1 Specialized Hazards of the CLASS
2 Special Hazards of the RISK
According to Webb, what are the 3 recognized classes of persons whose rights the law protects
1) Invitee
2) Licensee
3) Trespasser
According to Webb, what are the 5 relationships that create vicarious liability
1) principle-agent relationship
2) employer-employee relationship
3) parent-child relationship
4) contractual relationship
5) partnership
According to Webb, what are the 6 legislated approaches in AL insurance that alter underwriting decisions
1) Financial responsibility laws
2) Compulsory automobile liability insurance
3) Shared automobile market mechanisms
4) Mandatory uninsured motorists coverage
5) No-fault automobile laws
6) Restrictions on cancellations and nonrenewals
According to Webb, list the 10 major underwriting factors in private passenger auto
1) Age of operators
2) Age and type of automobile
3) Use of the automobile
4) Driving record
5) Territory
6) Sex and marital status
7) Occupation
8) Personal characteristics
9) Physical condition
10) Safety equipment
According to Webb, list the 7 major industry classifications of commercial auto
1) Truckers
2) Food delivery
3) Specialized delivery
4) Waste disposal
5) Farmers
6) Dump and transit mix trucks and trailers
7) Contractors
According to Webb, list 4 auto residual market mechanisms
1 Automobile Insurance Plans
2 Joint Underwriting Associations
3 reinsurance facilities
4 State Funds (MD)
According to Webb, list 4 Commercial Automobile Underwriting Factors
1 Weight and Type of vehicle
2 Use of Vehicle (Service has lowest rate, Retail has highest)
3 Radius of Operation
4 Special Industry Classification
According to Webb, list 7 essential elements of a good fleet safety program
1 Driver Selection
2 driver training and motivation
3 equipment control
4 accident reporting and review
5 periodic checking of drivers and vehicles
6 enforcement and reinforcment of the program
7 management support of the program
According to Webb, list 3 sources of products liability
1 breach of warranty
2 tort of negligence
3 strict liability in tort
According to Webb, list 4 activities that generate "completed Operations Hazard"
1 Construction
2 Service
3 Repair
4 maintenance
According to Economics Boor, List 3 reasons why there is a relatively flat demand curve for insurance.
1 Requirements by law (personal auto, WC,commercial auto)
2 Requirements by lender - (homeowners, auto phys dam)
3 Preemptory Reasons - potential for lawsuits can drain a company's recources
According to Economics Boor,since insurance products are often the same, list 6 attributes a company can use to create a brand name.
1 claims department, and coverage extensions
2 financial strength of insurer
3 insurer flexibility in customizing insurance programs to meet individual's needs
4 insurer record on 3rd party claim defense
5 accessibility of insurer's claim department
6 quality of loss control program
According to Economics Boor, list the stages of the insurance cycle
1 Insurance is in low supply
2 Insurers raise prices
3 Insurer profitability is high
4 New insurance firms enter the market
5 Excess Capacity exists in market
6 Insurers lower prices
7 Insurer Profitability is low
8 Insurers Exit the market
According to Economics Boor,
list 2 reasons why the insurance business cycle is exacerbated
1 underwriters are not aware of true claims cost
2 companies continue to sell insurance when they are not making a profit (soft market)
According to Homeowners Weining, the definition of "Insured" icludes these 3 things
1 the person named in the declarations as the insured
2 Relativies who reside at the named insureds household, or othere persons under 21 in the care of named insured
3 A full-time student who lives away from home, but resided in household before leaving to school
According to Homeowners Weining, "Insured location" includes the residence premises and these 6 other places:
1 An unlisted residence aquired by the named insured during the policy period
2 A nonowned premises where insured is temporarily residing (hotel room)\
3 vacant land (owned or rented excluding farmland)
4 Insured's land on which a residence is being constructed
5 Family cemetery plots
6 Any premises temporarily rented to insured (excludes business use, ex: hall rented for wedding)
According to Homeowners Weining, In the HO-3 policy, what is the special limit on:

Money, bank notes, gold and silverware other than silverware
$200
According to Homeowners Weining, In the HO-3 policy, what is the special limit on:

Securities, Accounts, deeds, evidence of debt, letters of credit, notes other than bank notes, manuscripts personal records, passports, tickets and stamps, airline tickets, and personal records stored on software
$1,500
According to Homeowners Weining, In the HO-3 policy, what is the special limit on:

Watercraft (including outboard motors, furnishings, equipment and trailers)
$1,500
According to Homeowners Weining, In the HO-3 policy, what is the special limit on:

Any trailor not used with watercraft
$1,500
According to Homeowners Weining, In the HO-3 policy, what is the special limit on:

The following are subject to loss only by theft:

Jewelry, watches, furs, pecious stones
Firearms
silverware, goldware, pewterware
$1,500 - Jewelry, watches, furs, pecious stones
$2,500 - Firearms
$2,500 - silverware, goldware, pewterware
According to Homeowners Weining, In the HO-3 policy, what is the special limit on:

Property used at anytime, in any manner, for any business purpose
$2,500 on premises

$500 off premisies
According to Homeowners Weining, In the HO-3 policy, what is the special limit on:

Electronic Aparatus, that can be plugged into cigarette lighter - this includes CD's/Tapes
$1,500
According to Homeowners Weining, In the HO-3 policy, what is the special limit on:

Electronic Apparatus in 7., that is not in or upon car, but awat from the residence, and is used at anytime for business purpose
$1,500
According to Homeowners Weining, How are losses to Personal property valued and settled?
Losses to personal property listed under Cov C, are settled at the lesser of the following:

Actual Cash Value
The amount required to repair or replace the items
According to Homeowners Weining, How are losses to Coverage A and B valued and settled?
If it is not over 20% underinsured... the settlement will be Replacement cost up to the limit

If it is underinsured you do the math, and pay the greater of the Actual Cash value and the math.
According to Homeowners Weining, In Section II, what 3 things does Coverage E provide coverage for?
1) BI
2) PD
3) "personal injuries" (libel, slander, malicious prosecution, wrongful eviction, violation of privacy)
According to Trupin/Flitner, List the 6 major types of commercial property insurance
1) Commercial Property
2) Boiler and Machinery Insurance
3) Commercial Crime Insurance
4) Commercial Inland Marine Insurance
5) Farm Insurance
6) Businessowners Policies
According to Trupin/Flitner, List the 3 broad categories of property covered by BPP
1) Building
2) Your business personal property
3) Personal property of others
According to Trupin/Flitner, List the 7 things from "Other Personal Property" that coverage is not included for in a BPP
D.E.M.C.A.B.S.
1) Deeds
2) Evidences of debt
3) Money
4) Currency
5) Accounts
6) Bills
7) Security and notes
According to Malecki Commercial Liability, List the 3 elements of a tort
1) A legally protected right
2) A wrongful invasion of that right
3) Damages as a proximate, or direct, result of that invasion
According to Malecki Commercial Liability,List the 3 broad classifications of torts
1) Negligence
2) Intentional torts
3) Strict liability torts
According to Malecki Commercial Liability, List the 5 defenses to negligence actions
1) Contributory negligence
2) Comparative negligence
3) Assumption of risk
4) Statutes of limitations
5) Immunities
According to Malecki Commercial Liability, List the 3 common examples of strict liability torts
1) Abnormally Dangerous Instrumentalities
2) Ultra hazardous Activities
3) Dangerously Defective Products
According to Malecki Commercial Liability, List the 6 conditions for the insurer to pay damages on behalf of the insured
1) Insured must be legally obligated to pay damages
2) The damages must result from BI or PD
3) The policy must apply to the BI or PD
4) The BI or PD must be caused by an occurrence
5) The occurrence must take place in the coverage territory
6) The BI or PD must occur during the policy period
According to Malecki Commercial Liability, List the 3 types of damages paid by the insurer
1) Special damages
2) General damages
3) Punitive damages
According to Malecki Commercial Liability, List the 4 advantages to the plaintiff for filing suit in the US
1) The available of a trial by jury
2) The available of the contingency fee approach
3) Pre-trial discovery
4) Recognition of strict liability in products
According to Malecki Commercial Liability, List the 4 types of coverages in a CGL policy
1) Premises and operations liability coverage
2) Contractual liability coverage
3) Fire legal liability coverage
4) Products and completed operations coverage
According to Malecki Commercial Liability, What 3 conditions must be met for BI or PD to be included in the products hazard
1) The BI or PD must arise out of "your product"
2) The BI or PD must occur away from premises
3) The product causing the BI or PD must not be in the insured's physical possession when the BI or PD occurs
According to Malecki Commercial Liability, Give the 3 conditions that must be met for BI or PD to be included in the completed operations hazard
1) The BI or PD must arise out of "your work"
2) The BI or PD must occur away from premises
3) The work causing the BI or PD must be completed or abandoned when the BI or PD occurs
According to Malecki Commercial Liability, what are the 5 steps in the risk management process?
1 Identify and analyze loss exposures
2 Examine feasibility of alternative risk management techniques
3 Select best risk management techniques
4 Implement techniques
5 monitor program
According to Malecki Commercial Liability, How do liability limits apply with regards to supplementary payments?
Defense costs, including all of the supplementary payments are payable in addition to the applicable limits of insurance
According to Malecki Commercial Liability, in prem/ops does CGL cover moving and unloading of stuff?
CGL does NOT COVER property

1 loading onto aircraft, auto, or watercraft
2 while on aircraft, auto, watercraft
3 while being moved from aircraft, auto, watercraft to the place where it is finally delivered
According to Malecki Commercial Liability, list the 6 types of property NOT COVERED in CGL
1 named insured's own property
2 premises sold, given away, or abandoned
3 loaned property
4 property in care, custody, control of insured
5 property being worked on
6 faulty work
According to Malecki Commercial Liability, List the 2 major exceptions for when an employer is not vicariously liable for torts committed by an independent contractor
1 Non-delagable duties
2 inherently dangerous activites
According to Malecki WC and EL, List the 3 common-law defenses by an employer in negligence actions
1) Assumption of risk
2) Contributory negligence
3) Negligence of a fellow servant
According to Malecki WC and EL, Give the 5 specific objectives of the workers compensation system
1) Prompt payment of adequate benefits
2) Elimination of the delays and costs of litigation
3) Establishment of a guarantee of benefit payments
4) Promotion of industrial safety and industrial hygiene
5) Payment for medical care services
According to Malecki WC and EL, List the 4 classes of disability
1) Temporary total
2) Temporary partial
3) Permanent partial
4) Permanent total
According to Malecki WC and EL, List the 6 parts of the standard WC&EL policy form
1) Workers Compensation Insurance
2) Employers Liability Insurance
3) Other States Insurance
4) Your Duties If Injury Occurs
5) Premium
6) Conditions
According to Malecki WC and EL, List the 4 types of suits or claims that are covered by employers liability coverage
1) Third -party-over
2) Care and loss of services
3) Consequential bodily injury
4) Dual capacity
According to Malecki WC and EL, List the 5 methods of financing Work Comp benefits
1 State Funds
2 Assigned Risk Plans
3 Self-Insurance Plans
4 Private Insurance
5 Excess Insurance
According to Malecki WC and EL, Who is covered and what is remedy for Federal Employer's Liability Act
Employees of Interstate RAILROADS
- negligence suit against employer
According to Malecki WC and EL, Who is covered and what is remedy for Jones Act
Member's of a vessel's Crew - same as Jones act
According to Malecki WC and EL, Who is covered and what is remedy for Longshore and Harbor Workers' Comp Act
maritime workers with some exceptions (master of crew)
- no fault benefits as defined by statue
According to Malecki WC and EL, Who is covered and what is remedy for Defense Base Act
civilian employees at US military bases overseas, or civilian employees working overseas under contract with US Gov.
-no fault benefits as defined by statue
According to Malecki WC and EL, Who is covered and what is remedy for Outer Continental Shelf Lands Act
workers on a fixed offshore drilling and production platforms
-no fault benefits as defined by statue
According to Malecki WC and EL, Who is covered and what is remedy for Non-Appropriated Fund Instumentalities Act
civilian employee of same on US military bases
-no fault benefits as defined by statue
According to Malecki WC and EL, Who is covered and what is remedy for Death on the High Seas Act
member's of a vessel's crew
-survivors may sue employer for death occurring beyond a marine league from the shore of any state
According to Malecki WC and EL, Who is covered and what is remedy for Migrant and seasonal Agriculturer Worker act
migrant and seasonal worker
-suit against employer
According to Malecki WC and EL, Who is covered and what is remedy for Federal Employees's Compensation Act
non-military employees of US government
-no-fault benefits as defined by statute.
According to Malecki Professional Liability, List the 4 types of damages recoverable for a breech of contract
1) Compensatory Damages
2) Consequential Damages
3) Liquidated Damages
4) Nominal Damages
According to Malecki Professional Liability, List the 5 common allegations against medical professionals
1) Improper Diagnosis
2) Improper Tests
3) Surgical Error
4) Lack of Informed Consent
5) Use and Administration of Anesthetics and Drugs
According to Malecki Professional Liability, List the 5 common defenses available to medical professionals
1) Statute of limitations
2) Good Samaritan Statutes
3) Assumption of Risk
4) Contributory or Comparative negligence
5) Informed Consent
According to Malecki Excess and Umbrella, For Excess and Umbrella list the 3 basic issues involved in the use of liability insurance
1) Difficulty in estimating maximum possible loss
2) Layering of liability coverages
3) Effect of aggregate limits
According to Malecki Excess and Umbrella, List the 3 basic forms in Excess liability insurance
1) A "following form"
2) A self-contained policy
3) A combination of the two above
According to Malecki Excess and Umbrella, List the three basic functions of umbrella policies
1) Provide additional limits above the underlying policies occurrence limits
2) Provide drop-down coverage when underlying aggregate limits are reduced or exhausted
3) Provide drop-down coverage when some claims are not covered by the insured's underlying policies
According to Malecki Excess and Umbrella, with respect to umbrella liability policies, what is the distinction between a deductible and a self-insured retention from a claims handling process?
Under a deductible policy, the insurer pays the full claim and then collects the deductible amount from the insured. The insured must report all claims below the deductible for processing

Under a self-insured retention policy, the insured need not report claimsbelow the retention because the insured is responsible for processing and payment of these claims. The insurer only pays the amount of loss above the retention
According to Bourdon, Waht is the definition of CAPITATION?
Capitation is a method of paying healthcare providers in which a fixed amount is paid per enrollee to cover a defined set of services over a specific period, regardless of the actual services provided.
According to Bourdon, what are the 4 characteristics of HMOs that distinguish them from other structures?
1) HMOs assume contractual responsibility for providing certain healthcare services
2) HMOs receive a fixed periodic payment in return for their services
3) HMOs assume financial risk for the contracted services
4) HMOs have an organized delivery system
According to Bourdon, what are 3 key similarites among all managed care plans?
1) Provider restrictions
2) Utilization management
3) Financial incentives
According to Bourdon, what are the 4 key financing vehicles and risk management techniques in response to increased use of capitation contracts?
1) Specific excess loss insurance
2) Aggregate stop loss protection
3) Alternative risk financing vehicles
4) Administrative management services
According to Bourdon, what are the 4 fundamental differences between healthcare and P&C risks which affect the models?
1) Morale Risk
2) Independence of Events
3) Considerations Discussed in Specific Excess Pricing
4) Fortuitous versus Scheduled Costs
According to Bourdon, what are the 4 mechanisms in the alternate risk market?
1) Self-insurance
2) Captive insurance companies
3) Private label insurance
4) Administrative support organizations (ASOs)
According to Bourdon, what are his 8 predictions on the future of the healthcare industry?
1) Increase in insurance products and services
2) Increase in alternative markets
3) Integration and consolidation
4) Integration with workers compensation
5) Increase in regulation
6) Increase in professional liability exposure
7) Changed identity for healthcare professionals
8) Increased opportunities for actuaries
According to Bourdon, what are the 4 steps in the rating approach of excess deductibles?
1) Develop a net claim cost distribution (by deductible) based on historical/industry data
2) Adjust the claim cost distribution from step one (by deductible) to the characteristics of the provider being underwritten
3) Adjust the net claim cost, derived in step two, for product design aspects
4) Convert the net claim cost from step three to a gross premium rate by including loads for anticipated expenses (including profit, tax, claims handling, etc.)
According to Bourdon, what are 5 reasons why the paper should be of interest to actuaries?
1) The distinction between health and casualty insurance is blurring (e.g. 24 hour coverage)
2) Managed care affects exposure to loss in casualty coverages such as hospital and physician professional liability
3) The use of managed care in workers compensation is increasing
4) The healthcare industry values casualty actuaries' expertise in evaluating specific excess of loss coverages, aggregate excess of loss contracts, and alternative risk programs
5) Some states classify healthcare provider excess insurance as a casualty insurance product
According to Bourdon, what are the 3 categories of services provided to healthcare providers by Management Services Organizations (MSO's)?
1) General Business Support
2) Enrollment/Claim Administration
3) Medical Management
According to Bourdon, Why is coinsurance so important in specific excess of loss policies? - 2 reasons
1 Coinsurance is considered critical to ensuring that providers remain interested in actively managing ongoing claims which have pierced the deductible
2 Unlike P&C claims, capitated claims remain in the control of the insured until the close of the policy period forces a limit on the claim amount.
According to Bourdon, Why have insurers not aggressively developed and marketed aggregate stop loss protection for capitation risk? - 2 reasons
1 Subjectivity of measuring losses
2 lack of claim control by insurer
According to Bourdon, give 2 reasons why the hospital may consider buying aggregate stop loss protection for capitation.
1 There may be a high number of catastrophic cases that could financially ruin the hospital otherwise
2 A difference as little as 5 years between the average age of insured CONTEMPLATED in the ratews and the average age in the INSURED POPULATION can have devistating effects on the hospital's profitability.
According to Weining contract analysis, Define Genuine Assent
A contract may appear to be valid and enforceable, but if the consenty of either contracting party is nor genuinely given, the contract may not be legally binding.

Examples (fraud, Duress was used, Undue influence is shown, innocent misrepresentations have been made, a mistake was made by one of the parties)
According to Weining contract analysis, Define contracts of adhesion
contracts of adhesion are prepared by 1 party , with the other party having no choice but to accept or reject all of the terms.

Ambiguities in the contract of adhesion will generally be constued against the party that drafted the contract.
According to Weining contract analysis, Define contracts of cohesion
contracts of cohesion are drafted by both parties
According to Weining contract analysis, Define the Principle of Indemnity
The priciple states: Insurance contracts should give a benefit no greater in value than the loss suffered by the insured.

in other words, a person should not profit from an insured loss
According to Weining contract analysis, What are the 2 purposes of the priciple of indemnity
1 It prevents insured from profiting from insurance
2 It removes moral hazard
According to Weining contract analysis, list 2 violations oof the priciple of indemnity
1 Replacement Cost Insurance - no impact from depreciation
2 Valued Policies examples life insurance and total loss on real property
According to Weining contract analysis, what are the 6 criteria for a contract to be legally enforceable?
1) The contract must have a lawful objective or purpose
2) The parties involved must be competent to contract
3) The parties must enter into an agreement
4) The agreement must consist of a legally binding offer
5) There must be an acceptance of that offer
6) There must have been legally sufficient consideration to support the agreement
According to Weining contract analysis, List the 6 advantages a modular policy has over the self-contained policy
1) Minimize the possibility of gaps and overlaps
2) Easier to read
3) Fewer forms are required
4) Underwriting is simplified
5) Adverse selection problems are reduced
6) Premium discounts might apply
According to Weining contract analysis, List the seven general purposes of exclusions
1) Eliminate coverage considered uninsurable
2) Reduce the impact of moral hazards
3) Reduce the impact of morale hazards
4) Eliminate coverage duplication
5) Eliminate coverage not needed by typical insured
6) Eliminate coverage requiring special treatment
7) Keeping premium rates reasonable
According to Weining contract analysis,List the 5 categories an insurance provision can be placed in.
1) Declarations
2) Definitions
3) Insuring agreements
4) Exclusions
5) Conditions
According to Weining contract analysis, Describe the difference between a standard vs. a non-standard policy
ISO and AAIS have developed standard insurance forms that are available and used by many companies

A non-standard policy is a proprietary pre-printed contract. The are used for high volume lines (homeowners) or coverages in which an insurer may specialize
According to Weining contract analysis, List 5 collateral documents that may become part of the insurance contract
1 The completed application for insurance
2 Endorsements
3 The insurer's bylaws
4 relavant statutes
5 other miscellaneous documents
According to Weining contract analysis, describe the purpose of the assignment provision
Insurers preserve their rights to select their insureds by includign an assignment provision. Example you can't sell your home and then have the new owner insured)

One Exception is Ocean Marine Insurance
According to Weining contract analysis, Define bailee and describe the no benefit for bailee provision.
A bailee is a party having possesion of the personal property of another and a duty to either return it or dispose of it as agreed.
Example (dry cleaner, auto service station)

A bailee is not legally responsible for all damages to the property, the bailee is only responsible for damage caused by the bailee's negligence.
According to Weining Contract Analysis, Describe the "Severability of Insurance" Clause
This insurance applies separately to each insured. This condition will not increase our limit of liability for any one occurence.
The named insured is not affected by the actions of people whom he cannot direct or control.
For Property - coverage still apllies at a location, even if a policy condition was breached at another location.
For liability-coverage provided even if one insured brings a suit against another insured, coverage applies to one insured even if another insured has breached a policy condition.
According to Weining Contract Analysis, When an insurer is notified of a cliam, list its 4 basic options
1 Accept claim
2 Deny claim
3 Reservations of rights letter or nonwaiver agreement
4 seek a declaratory judgment
According to Weining Contract Analysis, Describe a reservation of rights letter
More common than nonwaiver agreement, because it only has to be signed by insurer
states that htey are handling the claim but reserving the right to deny coverage later
Serves to do 2 things:
1 protect insurer so that it will niot be determined that earlier actions waived its right to deny coverage
2 It informs the insured that a coverage problem may exist
According to Weining Contract Analysis, Describe a nonwaiver agreement and state 2 reasons why they are not commonly used
has to be signed by both insured and insurer.

1 Insured can refuse to sign agreement
2 may be ruled unenforceable due to lack of consideration.
According to Weining Contract Analysis, Describe Declaratory Judgment Action
Resolves coverage question (not question of actual liability)
may be used in addition to reservation of rights letter
can be requested by insurer or insured
According to Weining Contract Analysis, List the 6 factors involved in the sophisticated insured rule
1) Size of the insured
2) Insured's employment of a professional risk manager
3) Involvement of counsel on behalf of the insured
4) Involvement of an insurance broker on behalf of the insured
5) Use of a manuscript policy
6) Relative bargaining power of the parties
According to Weining Contract Analysis, Describe the "Reasonable Expectations Doctrine"
An insurance policy is interpreted to provide the protection that the insured might reasonably have expected, even though the expectaion is not clearly expressed in the policy.
-this is not triggered by ambiguity in policy
According to Weining Contract Analysis, Describe the "Unconscionable Advantage Doctrine"
Demands insurer deal with insured fairly and in good faith
The courts have ruled in favor of the insured in cases where the insured is trying to preserve the contract but finds some clause difficult, or almost impossible to perform
According to Weining Contract Analysis, Describe the "Substantial Performance Doctrine"
minimum standard that must be met by insured

If the insured is acting honestly and in good faith, substantial compliance with the policy provisions is ussually adequate to preserve coverage.
According to Weining Contract Analysis, Define "Waiver"
voluntary relinquishment of a known right
According to Weining Contract Analysis, Define "Estoppel"
estoppel exists when a party's present claimed position cannot be enforced because it is inconsistent with that party's past conduct
According to Weining Contract Analysis, Define "Collateral Estoppel"
parties should not be able to litigate the same issue more than once, provided there has been a full and complete determination of the issue
According to Weining Contract Analysis, Define "Judicial Estoppel"
soemone who takes/argues a certain position, they cannot later take the opposite position on a subject involving essentially the same issues
According to Weining Personal Auto, List the 9 parts of a PAP
1) Declarations page
2) General agreement
3) Definitions page
4) Part A - Liability Coverage
5) Part B - Medical Payments Coverage
6) Part C - Uninsured Motorists Coverage
7) Part D - Coverage for damage to your auto
8) Part E - Duties after an accident or loss
9) Part F - General provisions
According to Weining Personal Auto, List the 3 types of bonds covered by the PAP
1) Bail Bond
2) Appeal Bond
3) Release of Attachment Bond
According to Weining Personal Auto, List the 3 types of supplementary payments
1) Bonds
2) Interest
3) Expense
According to Weining Personal Auto, List the 3 coverage alternatives available in part D of the PAP
1) No physical damage coverage
2) Other-than-collision coverage
3) Both collision and other-than-collision coverage
According to Weining Personal Auto, List the 7 duties required of an insured following a loss
1) Prompt notice
2) Submission of legal papers
3) Cooperate with the insurer
4) Physical examination
5) Examination under oath
6) Authorization of medical records
7) Proof of loss
According to Weining Personal Auto, List the 3 reasons an insurer may cancel a PAP policy
1) The premium has not been paid
2) The driver's license of an insured has been suspended or revoked
3) The named insured lied on the application for insurance
According to Weining Personal Auto, List some facts about the PAP part B - Medical Payments
Part B medical coverage applies without regard to fault.

The insurer promises to pay reasonable expenses incurred, because of BI caused by an accident and sustained by an insured for: 1) necessary medical services 2) funeral services
According to Weining Personal Auto, Explain the term "Diminution of Value" as it applies to the auto policy
"Diminution of Value" is the loss in value of an auto simply due to the fact that the auto was in an accident, even if complete repair was made. A car that has been in an accident has less value than one that has not.

The unendorsed PAP does not mention the existence of coverage for Diminution in value, But ISO has made available an endorsement which specifically excludes coverage for diminution of value
According to Weining Personal Auto, List the 4 types of Uninsured vehicles under an unendorsed PAP
1 A motorist without BI liability policy or an amount of coverage less than the minimum specified by the financial responsibility laws of a state
2 A hit-and-run vehicle, whose owner is unidentified, which hits the covered auto
3 A vehicle designed for use off-road whileoperated on a public road
4 A vehicle to which an insurance policy applies, but the insurer has gone insolvent.
According to Web Property Claim Adjusting, List the 3 core duties of an adjuster
1) Verifying the cause of the loss
2) Determining the amount of the loss
3) Documenting both the cause and the amount of the loss
According to Web Property Claim Adjusting, List the 3 choices of procedures an adjuster has upon notice of a new claim
1) The adjuster can accept the policyholder's word and settle the claim accordingly
2) The adjuster can personally investigate the loss
3) The adjuster can employ experts to investigate the loss or refer it to an SIU
According to Web Liability Claim Adjusting, List the 5 principal stages of a lawsuit
1) Pleadings
2) Discovery
3) Motions
4) Trial
5) Appeal
According to Web Liability Claim Adjusting, List the 6 most common ADR (Alternative Dispute Resolution) forums
1) Negotiation
2) Mediation
3) Arbitration
4) Appraisals
5) Mini-trials
6) Pre-trial Settlement Conferences
According to Weining, what are 3 advantages for employers who self-insure health benefits?
1) Health insurance costs might be reduced or increase less rapidly due to the savings in premium taxes, commissions, and the insurer's profit
2) Cash flow may be improved, since the employer retains part of all of the funds
3) Self-insured plans are usually exempt from state laws requiring insured plans to offer certain mandated benefits
2005, Breifly Describe the following types of suits in Employer's Liability

1 Third-Party Over
2 Care and loss of Services
3 Consequential Bodily Injury
4 Dual Capacity
1 Third-Party Over - a third party files suit against an employer after an employee files suit against third party. Third party alleges that employer's negligence contributed to employee's injury

2 Care and loss of Services - family member or spouse files suit aginst employer for loss of companionship, care, or consortium due to employee's injury.
3 Consequential Bodily Injury - family member or spouse suffers injury as a result of employees injury (heart attack from shock or contractraction of AIDS)
4 Dual Capacity - employee files suit against employer in a capacity other than "employers" (i.e. as a manufacturer)
2005, Both auto insurance and homeowners insurance provide medical payments coverage. What is the major difference bewteen them with regards to the parties covered?
Auto covers insured, family members and anyone else in the insured auto for medical expenses incurred. Auto also covers medical expenses for insured and family members when they are struck by a car as pedestrians.

Homeowners covers medical payments incurred by anyone who is injured while in the insureds home. Not meant to cover insured or ofamily, but, to cover guests and non-residents.
2005, what are the 2 purposes of exclusions in insurance policies
1 reduce moral hazard and morale hazard
2 Eliminate coverages not needed by a typical purchaser
2005, Underwriting authority can be centralized or decentralized, describe a situation where it would be appropriate to centralize underwriting authority.. Explain
If the company is writing mostly large commercial accounts in which a lot of underwriting expertise is needed, it might be best to centralize U/W authority. This would make it easier to keep close control over risks being taken.
2005, Other than policy limits, state and describe the two other commonly used measures of potential severity in property underwriting
Actual Cash Value - measures the cost of replacing the item minus depreciation

Probable Maximum Loss: this is the largets likely loss determined by the underwriter taking into account risk and using experience and judgement
2005, Identify 2 points in time when the statute of limitations may begin to run in medical malpractice cases.
1 When the claimant knows or out to know about the injury

2 the time of injury
2005, In general, how does the statute of limitations apply in the case of minors
Does not begin until a child reaches the age of maturity
2005, State and describe 2 defenses, other than statute of limitations, that a medical professional might use to respond to an allegation of negligence.
1 No negilgence, a due standard of care has been observed
2 Good Samaritan Rule - in case of emergency, where no compensation is provided (if not gross negligence)
2005, Provide 2 reasons for coinsurance provisions in health insurance
1 Prevent unnecessary medical expenses after deductible has been met
2 reduce premiums/cost of insurance to insured
2005, State the 4 ratemaking principles of the CAS
1 A rate is an estimate of th eexpected value of future costs
2 A rate provides for all costs associated with the transfer of risk
3 A Rate provides for the costs associated with an individual risk transfer
4 A rate is reasonable, not inadequate, excessive, or unfairly discriminatory if it is an actuarially sound estimate of the expected value of future costs associated with an individual transfer of risk.
2005, Bouska emphasizes the following 2 characteristics of exposure bases. Breifly explain each statement.

1 The exposure base is not the true exposure
2 The exposure base is not a rating variable
1 The exposure base is not the true exposure - the true exposure base is constantly in change, therefore it is impossible to choose an exposure base to represent the true exposure. Therefore the exposure base serves as a proxy for the true exposure.

2 The exposure base is not a rating variable - The exposure base should have a continuous multiplicative relationship to expected losses. A rating variable has a discrete, non-linear relationship
2005, Briefly explain both the direct and indirect effects of a legislative change that increases the statutory WC Indemnity benefit by 15%
Direct Effect - more indemnity payments will be paid, even if there is no change in reported claims, average duration, etc.. The effect may not be exactly 15% due to minimum and maximum benefit levels

Indirect effects will be an increase in claims reported (since claims are now richer, more injuries will be reported) Also claim duration will increase as more employees will malinger with leess incentive to work. It would also incent older employees to use WC as "early retirement"
2005, Assume the fixed Expense provision in a statewide rate level indication is based on a countrywide historical multi-year average of th eratios of actual expenses to actual earned premiums.

State 2 items that can cause this methodology to create innaccurate an inequitable indicated rate changes
1 If there have been any rate changes in the experience period, the indicated rate change would be innacurate - so use current-leveled EP

If the statewide historical multi-year average of ratios of actual expenses to actaul earned premium is drastically different from the country wide average, the indicated change amy be innaccurate or inequitable
2005, Finger discusses the effect of market forces on the refinement of insurance classification plans

Describe how the behaivor of the policyholders creates pressure on the insurers to refine classification plans
Policyholders shop around for the most affordable coverage, so insurer's who can identify lower cost risks can offer lower premiums and make more profit (skimming the cream) or conversely those who don't recognize get selected against. This puts pressure to refine classification sytems
2005, Finger discusses the effect of market forces on the refinement of insurance classification plans

Explain why classification plans may also become more refined as insurance coverage becomes more expensive. Discuss from the perspective of the insurer and th epolicyholder
Insurer: has more "expense" dollars on expensive coverages with which to refine the class sytem
Has incentive to keep large accounts which are profitable

Policyholder: Has mopre incentive to shop around since he is paying so much in premium
2005, Explain efficiency and its importance in classification system design.
Efficiency is a measure of the accuracy of the class system. A common formula used to measure it is:

eff = (CV2 of class plan)/(CV2 of population)

The importance of efficiency i sthat a more efficient clas plan is more accurate, thus, that insured can price the insuranc emore correctly, improving profits, solvency, equity among insureds, and fairness in rates.
2005, Explain 2 reasons why claim inflation produces larger cost trends in increased limits coverage, than on basic limits coverage
1 for losses above the Bl, inflation will impact the increased limits portion of the loss only.

2. For losses near the BL, inflation may cause the loss to pierce the IL layer, resulting in a an increased frequency of IL losses
2005, Does the pure premium rate per $100 of insurance for a %500K polidy face differ from the rate for the $300K policy face? Brefifly explain.
Yes it will be different. Pure Premium per $1 face amount increase will decrease, as long as a loss less than the face amount is possible, because after all, lorger losses occur less frequently.
2005, In determining loss costs in states with significant hurricane exposures, there are several limitations of traditional loss smoothing approaches. State and desribe 3 of these limitations
1 Grouping of states into regions masks hurricane potential - each state has its own potential for hurricanes. so regoinal groupings can either produce higher or lower probablities thasn given state would have on its own.

2 Different areas of a state have different hurricane potential - coastal areas of a state have a much larger exposure to hurricanes than do inland areas.

3 Over-reliance on long-term premium and loss data - changes in population densities, exposure concentration and construction costs make historical data not as relevant in predicting future losses.
2005, With Regard to the ISO CGL experince and schedule rating plan, explain why the plan uses basic limits losses, and limits losses and allocated loss adjustment expenses to a maximum single loss limitation
In order to capture data that is more stable. The MSL also makes rating more responsive to frequency than severity.
2005, With Regard to the ISO CGL experince and schedule rating plan, Explain why the MSL icreases as the size of the risk increases
The MSL limnits Loss and ALAE so that no 1 occurence will change the mod factor by more than .3. Therefore, as the size of risk increases, the effect of 1 occurence will be smaller and the MSL will go up.
According to Anderson, What is the purpose of medical coinsurance?
Provides Monetary disencentive for insured to incur frivolous medical expenditures

Flat deductible stregthens this effect.
According to Anderson, What is the purpose of property coinsurance?
To incite Policyholders to insure property for the correct value (or close to it) of the property or else face penalties in the event of loss.
According to Anderson, What is the definition of Coinsurance deficiency?
The amount by which a coinsurance requirement exceeds the carried insurance applicable
According to Anderson, What is the definition of Coinsurance Penalty?
Coinsurance Penalty - the amount >0 by which an indemnity payment for a loss is reduced by the operation of the coinsurance clause.
According to Anderson, list 3 reasons for variation of shape of size of loss distributions.
1) Smaller properties can burn faster due to less material to burn
2) Older properties can have higher frequency due to faulty wiring
3) Fires spread with greater speed in densely populated regoins.
According to Anderson, What is the definition of Gross Premium Rate?
Gross Premium Rate = Pure Premium Rate plus a loading for expenses, profit and contigency.
According to Werner, List the 5 steps of the current (old) methodology.
1) Determine Historical % of premium attributable to expenses for each of the expense categories
2 Select a provisional ratio
3 split ratios into fixed and variable
4 Trend selected fixed expense ratio
5 Incorporate the fixed expense ratio into statewide rate level indication
According to Werner, List the 5 steps of the PROPOSED methodology.
1) Determine Historical % of premium attributable to expenses for each of the expense categories
2) Split ratios into fixed and variable expenses
3) Trend Selected Fixed Expense Ratio
4) Select provisional Expense ratio
5)Incorporate the fixed expense ratio into statewide rate level indication
According to Werner, What is the difference in Trending in the proposed vs. current method?
In the current method, Werner Trends the selected Ratio forward.

In the proposed method, Werner Trends each years fixed expense per exposure forward. There are thus 3 different Trend periods in the proposed method and only 1 in th ecurrent method.
According to Sherwood/Tiller, What are the 4 goals of an Individual Risk Rating Plan?
1 Primary Goal is to price the coverage more accuratly than if the rates were based only on manual rates
2 To allocate costs to participants more accurately or to balance risk sharing and risk bearing
3 Motivation to participate in risk control programs
4 To provide information to design or modify risk control programs
According to Sherwood/Tiller, list 6 attributers of a good individual risk rating system
H-U-S-B-U-S

1 Honest - not subject to manipulation (internal/external)
2 Useful - serves needs of organizations using them
3 Simple - to administer
4 Balanced - (rsk sharing vs risk bearing)
5 Understandable
6 Stable (not subject to large fluctuation in costs from year to year due to catastrophes.
According to Sherwood/Tiller, In the NCCI retro-Rating Plan, Describe the overlap between Excess Loss Premium and Basic Premium if not Accounted for.
The Excess loss premium charges for that portion o fthe per occurence loss that is above the limit. The Basic Premium charges for that portion of the aggregate losses above a limit. Since a large loss would would push not only over the per occurence limit, but also closer to or above the agregate limit, such a large loss could be charged for twice. However, the Excess loss premium factor is calculated to remove any double-counting of losses above the per-occurence limit.
According to Moncher, describe what does the Annual Financial Call Data contain and what is it used for?
Aggregate premium and loss data, primarily used to calculate overall loss cost and rate level changes
According to Moncher, describe what does the Work Com Stat Plan (WCSO) contain and what is it used for?
Individual policy loss and exposure info collected with detail by classification, primarily used to calculate loss cost rels and experience rating mods
According to Moncher, describe what does the Detailed Claim Info data contain and what is it used for?
Sample of indemnity claims, used for special analyses
According to Moncher, describe what does the Policy Issue Capture System (PICS) data contain and what is it used for?
Policy docs submitted by insurers. Used to confirm proof of work comp coverage to state accident boards and commissions (NCCI)
According to Moncher, describe what does the Residual Market data contain and what is it used for?
Submissions from servicing carriers, including policy and calendar year premiums, losses and expenses. Used for financial reporting procedures.
According to Werner, should expenses be separated by new vs renewal
Yes
According to Tiller, what are the 3 types of prospective individual risk rating plans
1) Schedule Rating
2) Experience Rating
3) Composite Rating
According to Tiller, what are the 3 qualities the credibility must have when weighting the actual vs Expected LRs
1) 0 < Z < 1
2) Cred should increase as the size of the risk increases
3) The % charge for any loss of a given size should decrease as the size of the risk increases
According to Tiller, what 5 elements are included in basic premium
1) Profit and Cont
2) LAE in excess of those provided by the LCF
3) Acquisition and service costs
4) Net charge for limiting the retro prem between the min and max
5) Risk control services, prem audit, and general administration of insurance
According to Tiller, what is the purpose of the D-ratio in the experience rating plan
It adjusts the expected basic limits losses for the impact of the Maximum Single Limit, by reducing the expected basic limits losses and ALAE by the proportion of expected loss and ALAE higher than the MSL
According to Tiller, what is the standard prem equal to?
Manual premium modified for the experience rating, loss constants, min prem, excluding prem discount and expense constant
According to Anderson, list 3 reasons why he thinks “Fire insurance rates traditionally assume 80% coverage” is outdated
1)Insurers have been providing complete or near complete protection2) Insurers have refined their methods of estimating replacement cost3) Insurers have communicated the need to purchase more appropriate coverage levels
According to Prevesto, what are the 4 date fields collected on each transactional record?
1) Accounting
2) Inception
3) Effective/Expiration
4) Date of Loss
According to Prevesto, what are 3 examples where coded as rated may not be followed?
1) Extra detail collected
2) Regulatory requirements for a data element to be captured and maintained
3) Less detail collected
According to Prevesto, what are the 3 amount fields collected for the ISO statistical plans
1) Written premium
2) Loss indemnity
3) Loss-ALAE
According to Prevesto, what are the 4 additional data elements collected for the lines of insurance subject to natural disasters?
1) zip code
2) day of loss
3) expanded cause of loss detail
4) Building Code Effectiveness Grading Schedule code
According to Prevesto, what are the 3 areas that regulators monitor and regulate in the insurance business?
1) Financial solvency and solidity of insurance companies
2) Market conduct
3) Rate regulation
According to Prevesto, Describe "Summary-Based" Statistical Plans
"Summary-Based" Statistical Plans - data is summarized by line of business, state, class and by coverage and sent to the statistical agent The purpose of "summary Based" is to satisfy regulatory requirements
According to Prevesto, Describe "Transaction-Based" Statistical Plans
"Transaction-Based" Statistical Plans transaction level records are sent to the statistical agent. These records include the dollar amount of the premium and substantial information about risk characteristics. On the loss side, transaction records every time a loss is paid, including partial payments an the establishing of a case reserve. The purpose of transaction based statistical plans is to collect more detailed information to support the business need for data.
According to Prevesto, Define "Code as rated"
Means there is a direct correlation between the statistical coding of data that is collected to rate the policy and rating criteria. Example Homeowners: COVA, Deductible, policy limit
According to Prevesto, State the 2 broad categories of Exposure Bases used for General Liability.
1 Fixed Exposure Base - The exposure base is a definite known quantity at the inception of the policy EX: square feet
2 Variable Exposure base, EX: gross sales
According to Prevesto, what are the two main needs a statistical plan is developed to provide
1 Regulatory Purposes
2 Business purposes
According to Moncher, list the 5 major data collection programs at NCCI
1)Annual Financial Call Data
2) WC Statistical Plan Data (WCSP)
3) Detailed Claim Info Data (DCI)
4) Policy Issue Capture System Data (PICS)
5) Residual Market Data
According to Moncher, Which two data collection programs are the primary data sources used for Worker's Compensation Ratemaking?
1) Annual Financial Call Data. It is aggregate premium and losses used to calculate loss cost and rate level changes
2) WC Statistical Plan Data (WCSP). It is individual loss and exposure info used for loss cost rels and experience rating modifications