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
