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

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542 ARCHITECTURE FOR RESIDENTIAL PROPERTY INSURANCE RATEMAKING² The protective devices credit for smoke and burglar alarm combinationsmay be adjusted to apply to (AOP + fire) base premium.² The age of home credit maybeadjustedtoapplytothe(AOP+fire) base premium, or eliminated with the advent of fire andhurricane class plans.² The town/row house charge may be adjusted to apply to the(AOP + fire) base premium.² The replacement cost provisions charge for “guaranteed replacementcost” endorsements may be adjusted to apply tothe non-liability base premium.11. IMPLEMENTATION ISSUESThe move to a modern rating architecture for residential propertyinsurance affects many non-actuarial functional areas withinan insurer, including:² Operations (programming, policy management, statistical reporting)² External affairs (filings, regulatory relations)² Marketing (sales force, customer service training, competitiveanalysis)Several specific items and issues with actuarial overtones andcross-functional impacts are discussed below.Measurement of Overall Rate Level ImpactMost rate reviews proceed in three major steps:1. Examine the indicated overall rate level change;2. Determine base rates and rating factors (and rating logicas necessary);
ARCHITECTURE FOR RESIDENTIAL PROPERTY INSURANCE RATEMAKING 5433. Assess the overall rate level impact of the selectedrate structure and reconcile it with the indicated overallchange.Step 3 is extremely important to both internal and externalstakeholders in the insurance economy as well as to the actuarycharged with maintaining profitability. It may be accomplished atseveral levels of granularity. When only a few base rates and ratingfactors are changing and there are no significant changes tothe rating logic, aggregate estimates of the overall impact may besufficient. The extreme case would be a single change to a baserate that applies to all policyholders, in which case the actuarycould state with certainty the overall impact without analyzingthe effect at the policy level. When the rating logic and territorydefinitions are completely redesigned and each base rate,class and territory rate table is developed from first principles,the other extreme applies. The overall rate level impact must bemeasured by re-rating every existing policy on the proposed ratestructure.The actuary must be prepared to build tools that compare“before and after” premiums for each existing policyholder andthat can be run iteratively in a timely fashion. Again, technologyis the enabler allowing the extraction of high-quality data andexecution of rating logic quickly to measure rate impacts in thisfashion. As the impacts are compared against the indications, themost efficient technique for iterative adjustment is a flat factorapplied to the base rates by policy form. 32 This study does notvary the flat factor by peril, which has the effect of preservingthe overall distribution of base premium.Competitive and Residual Market AnalysisEven a policy-level measurement of static overall rate levelimpact is still insufficient to indicate the likely second-order or32 As a regulatory matter, some states require rate indications developed by policy form–in this milieu, the flat factor applied to the indicated base rates to achieve the overallindication should also vary by form.
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VOLUME XCII NUMBERS 176 and 177PROC
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FOREWORDActuarial science originate
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2005 PROCEEDINGSCONTENTS OF VOLUME
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2005 PROCEEDINGSCONTENTS OF VOLUME
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Editorial Committee, Proceedings Ed
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AN EXAMINATION OF THE INFLUENCE OF
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RISKINESS LEVERAGE MODELSRODNEY KRE
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DISCUSSION OF A PAPER PRESENTED AT
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RISKINESS LEVERAGE MODELS 81EXHIBIT
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WHY LARGER RISKS HAVE SMALLER INSUR
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ADDRESS TO NEW MEMBERS 151ateship a
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ADDRESS TO NEW MEMBERS 153You shoul
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ADDRESS TO NEW MEMBERS 155strength
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MINUTES OF THE 2005 CAS SPRING MEET
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MINUTES OF THE 2005 SPRING MEETING
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Volume XCII, Part 2 No. 177PROCEEDI
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MODELING FINANCIAL SCENARIOS 179Bab
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WHEN CAN ACCIDENT YEARS BE REGARDED
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ARCHITECTURE FOR RESIDENTIAL PROPER
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THE “MODIFIED BORNHUETTER-FERGUSO
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ADDRESS TO NEW MEMBERS-NOVEMBER 14,
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ADDRESS TO NEW MEMBERS 743Now to an
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PRESIDENTIAL ADDRESS-NOVEMBER 14, 2
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MINUTES OF THE 2005 CAS ANNUAL MEET
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2005 EXAMINATIONS—SUCCESSFUL CAND
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OBITUARIESROBERT GRANT ESPIECLYDE H
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OBITUARIES 825SIDNEY M. HAMMER1931
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OBITUARIES 827J. GARY LaROSE1947—
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OBITUARIES 829PAUL J. SCHEEL SR.193
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OBITUARIES 831LEO M. STANKUSCirca 1
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INDEX TO VOLUME XCIIPage2005 EXAMIN
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835GRAVES, CLYDE H.INDEX—CONTINUE
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837INDEX—CONTINUEDREPORT OF THE V
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PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

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