PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

530 ARCHITECTURE FOR RESIDENTIAL PROPERTY INSURANCE RATEMAKINGthe predominant exposure under the policy. Yet little guidancewas provided in the studies.² How should mitigation class plans be modified for commercialconstruction exposures?² How should mitigation experience data from actual catastrophicevents, as they are occasionally experienced, be assimilatedinto the class factors? It would be hubristic indeedto assume that mitigation devices and combinations thereofwill perform exactly as modeled when we observe the effectsof a real hurricane. To the extent they do not, what is the actuariallyappropriate credibility for the vital data from actualevents in future class factors?In summary, actuaries and their scientific partners have a longway to go in developing comprehensive mitigation class plansfor the relevant perils. To the extent we do not ask all the rightquestions, unpalatable answers may be forced upon the insuranceindustry. 24Class Factors–Fire (Construction/PPC)In the classical rating plan, class factors are targeted at thefire peril and two attributes of residential structures: the resistanceof the structure to fire damage, and the level of fire protectionafforded by the community in which the structure is located.These two attributes are highly interactive–masonry construction,which is more fire resistive, is more common in suburbanenvironments where fire hydrants are prevalent and firestations plentiful. Therefore, rating factors are developed using“two-way” actuarial analysis, as detailed by many contributorsto actuarial literature.This study breaks no new technical ground here–fire peril experiencedata is used along with a two-way “minimum bias” procedureto develop sound construction/PPC factors for the modern24 Regulators in Florida have already encouraged blanket application of the class factorsfor residential structures to HO-4 and HO-6 policies and other wind base rates.