CAS Exam 8 Fall 2018, Question 4
Study guide: Exam 8
An insurance company is launching a new telematics program for their private passenger automobile book of business. Telematics devices record various attributes such as miles driven and braking practices. Management decided to give a 5% discount to all customers that participate in the program. The Department of Insurance questions the filing and wants the company to address the following potential concerns:
- Risk of adverse selection
- Relationship between risk and expected outcomes
- Practicality of monitoring the discount's effectiveness
Defend the use of the discount by briefly addressing each of the concerns in light of Actuarial Standard of Practice No. 12, Risk Classification.
Part a (0.75 points)
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