CAS Exam 5 Spring 2013, Question 14
Study guide: Exam 5
An insurer proposes to increase rates by 6.0% where many individual policy impacts will be above 10%. The insurer proposes a capping rule that will restrict premium changes at the policy level to plus or minus 10.0%.
Part a (0.5 points)
Identify two problems that a capping rule may cause for an insurer.
Part b (0.75 points)
Explain why an insurer would propose a capping rule in light of the problems identified in part a. above.
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