1.3.2 Aggreating data

Aggregating Data

• Accurately match losses and premium for the policy

• Use the most recent data available

• Minimize the cost associated with gathering and retrieving data

• Aggregated by calendar year, accident year, policy year and report year

Calendar Year Aggregation

• groups data according to the calendar year

• implies that all premiums and exposure were earned during the calendar year

• Most appropriate for losses that are quicly reported and settled

• Advantages

  • Quickly available at the end of the calendar year

  • No future development. Premium, exposure and losses are fixed

  • no incremental cost. Data is used for financial purposes

• Disadvantages

  • Mismatch in timing between premium and losses

    • Premium earned during the calendar year comes from policies in force during the calendar year, which could have been written in the previous calendar year or the current calendar year

    • Losses may include payments and reserve changes on claims from policies issued years ago

    • Inability to capture major developments due to the fixed nature of data

Accident Year Aggregation

• groups losses according to the accident date.

• aggregated over a 12 month period based on when the accident ocurred

• Losses can change after the accident year has ended due to additional claim reports, loss payments, and reserve changes.

• Advantages

  • Easy to achieve and easy to understand

  • Better match of premiums and losses than calendar year aggregation,

    • losses paid for claims that occurred during the year are compared to premium earned during the same year

  • Useful for identifying the impact of major claim events (e.g., a catastrophe) or changes due to economic or regulatory forces (e.g., inflation and law amendments) on claims experience

• Disadvantages

  • Requires estimation of future development for known losses that are not closed at the end of the year

  • does note match premiums and losses as well as the policy/underwriting year aggregation method

Policy Year Aggregation

• groups data according to the year in which the policies were written

• Considered all premium and losses on a policy written within a 12 month period

• Premium and exposures are not fixed until all the policies written during the year have expired

• Losses can change after the accident year has ended due to additional claim reports, loss payments, and reserve changes.

• Advantages

  • Provides the best match between losses and premiums

  • Useful for identifying the impact of underwriting or pricing changes

• Disadvantages

  • Longer development time, exposures are not fully earned until after the end of the policy year

  • Difficulty in understanding and isolating the impact of a significant event, such as a major catastrophe or a major court ruling

Report Year Aggregation

• groups data according to when each claim was reported

• typically used for claims-made policies, where coverages depend on the report dates of the claims

• Advantage

  • more stable data than accident year aggregation, as the number of claims is fixed at the end of the year

  Disadvantage

  • Development on incurred but not reported claims is excluded