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

ARCHITECTURE FOR RESIDENTIAL PROPERTY INSURANCE RATEMAKING 531rating plan. No exhibits on this topic are included, but followingare some empirical results associated with a peril-specificanalysis:² The “spread” of construction/protection class factors is muchwider when only the fire peril experience is considered in theanalysis, as losses for other perils are not part of the experiencebase. Non-fire losses, which do not vary significantly byfire rating attributes, serve as ballast dampening the construction/protectionclass factors toward unity in the classical plan.This result confirms one of the stated advantages of the modernrating plan–greater rating resolution for non-catastrophicperils.² Significant differentials in loss experience are found for individual(ISO) protection classes 4, 5, and 6, prompting developmentof separate factors for these classes. Most insurerscombine classes 1—5 or 1—6 and use the same rating factor inclassical rating plans.² Fire experience for hybrid construction types such as brickveneer (over frame) and “hardi-plank” siding varies significantlyfrom that for either full frame or full masonry construction.Expansion of the classical “frame vs. masonry” constructionclass distinction to include an intermediate rating class forthese hybrid types is advised.9. KEY, DEDUCTIBLE, AND LIMIT FACTORSAs Exhibit 17 shows, the modification of base rates for territoryandclassleadstopartialkeypremiumsbyperil.Thekeypremiums are further modified for attributes reflecting the volumeof coverage provided, via key factors, deductible factors,and increased limit factors (for liability), to obtain partial basepremiums. It turns out that the incongruities in the loss distributionsfor fire, AOP, and modeled perils are significant enough towarrant separate development of key and deductible factors foreach peril. In addition, the presence of percentage deductiblesfor hurricane requires a separate set of deductible factors.