IF3 - Chapter 9: Establishing the Price: Rating Factors

Why is data important in underwriting and pricing?

It helps insurers assess risk, predict future claims and set appropriate premium rates.

Why is claims information important when setting premiums?

Past claims experience helps an insurer assess the likelihood and potential cost of future claims.

What is claims frequency?

How often claims occur.

What is claims severity?

How large or costly claims are.

How are frequency and severity used when assessing risk?

Insurers consider both how often losses are likely to occur and how expensive those losses could be.

What is a claims loss ratio?

A comparison of claims incurred against premium income, usually expressed as a percentage.

What is the basic claims loss ratio formula?

Claims incurred ÷ premiums × 100 = claims loss ratio.

What does a high claims loss ratio indicate?

Claims are consuming a large proportion of premium income, potentially indicating poor underwriting performance or insufficient premiums.

What is an underwriting year?

Business is grouped according to the year in which the policy was written/incepted.

What is a policy year?

Claims and premiums are considered over the 12-month period of an individual policy.

What is an accounting year?

Transactions are considered according to the insurer's financial accounting period, regardless of when the policy originally started.

What is a calendar year?

The period from 1 January to 31 December.