CAS Exam 8 Fall 2012, Question 11
Study guide: Exam 8
The fourth principle of Property and Casualty Insurance Ratemaking states:
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.
Part a (1 point)
Defend the assertion that experience rating supports the principle that a rate should not be unfairly discriminatory.
Part b (1 point)
Suppose the industry experience rating plan assigns too much credibility to individual experience for large insureds and assigns too little credibility to individual experience for small insureds. Argue that in a competitive insurance market, rates will not be unfairly discriminatory.
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