Personal Insurance Chapter 8

To assist companies in determining rates to charge various policyholders, insurance companies employ

Actuaries

class rate

It is a rate that is based on similar risk characteristics

Actuary

is a person who has received many years of specialized training in mathematics and statistics

Company guidelines

Underwriters use___ for acceptance or rejection of an application

A good student discount is an example of which type of rating factor

Secondary

CLK Insurance Company estimates that 20 out of every 100 homes it insures will suffer a fire in the next year. The company currently insurers 500 homes. According to the law of large numbers, what should happen if CLK insures 5,000 homes next year?

The actual results will be closer to 20 out of 100.

base rate

are modified for each policy according to primary and secondary rating factors

Application

asks you for information about your driving experience, tickets, accidents, age and type of vehicle, vehicle use, ect.

The law of large numbers states:

the greater the number of observations, the more accurate the prediction

Risk management is concerned with

the identification of loss exposures

Loss severity

the size of losses that may occur in a period of time

Automobile insurance is

Compulsory

Insurance is a highly regulated business but insurance companies are free to charge any price they wish.

False

rate

what the company will charge all customers who have similar risks

insurance premium

(Claims Company Pays + Expenses)= Their Profit

law of large numbers

(Claims Company Pays + Expenses)= Their Profit

primary rating factor

1. age, gender, marital status of operator 2. annual miles vehicle is used 3. garaging location 4. driver training/good student 5. driving record of operations

secondary rating factor

1. age, make, auto model 2. number or autos 3. discounts (airbags, vehicle anti lock brakes, alarms)

Insurance company actuaries consider loss data in its entirety, and they develop base rates that are used in determining premiums for individuals.

True

underwriting guidelines

detail the company's criteria for acceptance or rejection of an applicant

underwriting

is the process an insurance company uses to determine who will be offered an insurance policy and at what pice