CAS Exam 5 Spring 2016, Question 12
Study guide: Exam 5
An insurer is proposing the following changes in order to address inadequate rates:
| Building Type | Rating Factor: Current | Rating Factor: Proposed | Exposures |
|---|---|---|---|
| Commercial | 1.00 | 1.00 | 300 |
| Large Industrial | 1.15 | 1.15 | 500 |
| Small Industrial | 1.20 | 1.40 | 100 |
| Years Since Claim | Discount: Current | Discount: Proposed | Exposures |
|---|---|---|---|
| 0 | 0% | 0% | 50 |
| 1 | 10% | 5% | 150 |
| 2+ | 15% | 10% | 700 |
- Additive expense factor (after applying rating factors and discounts) = $20.
- Base premium = $100.
Part a (1.75 points)
Estimate the change to average premiums.
Part b (0.25 points)
Briefly explain a shortcoming with the calculation performed in part a. above.
Part c (0.5 points)
Briefly describe two non-pricing solutions that can address inadequate rates.
Answer this question and see the worked solution
Concepts tested
- Classification Ratemaking
- Insurance Premium
- Rating Algorithm
- Considerations for Implementing Rates
- Non-Pricing Solutions