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

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546 ARCHITECTURE FOR RESIDENTIAL PROPERTY INSURANCE RATEMAKINGFIGURE 5territory, it is just as important to manage customer retentionwhen many existing insureds likely face significant rate changes.First, the actuary can inform the marketing and sales force bygeographic area in a comprehensive fashion. Figure 5 shows anexample of a “pin map” that delineates the proposed territoryboundaries and contains a color-coded pin for each existing insuredlocation. The shades indicate the spectrum of rate changesthat will be experienced by each location.Second, serious consideration should be given to a transitionplan that caps annual swings in premium to a maximum andminimum percent value, phasing in the premium change for thosesubject to severe rate dislocations. There is a legitimate debate asto whether such plans are inherently unfairly discriminatory, asnew business and renewals would be charged different rates foran identical risk. A complete discussion of the economics and
ARCHITECTURE FOR RESIDENTIAL PROPERTY INSURANCE RATEMAKING 547public policy associated with such plans is beyond the scope ofthis paper, though it is noted that “swing limits,” capping changesin rating factors in spite of credibility-weighted indications, areused throughout many accepted rating plans in most lines ofinsurance. In any case, the practical business advantages of aphasing-in of premium changes for existing insureds cannot beoverlooked.It sounds simple to implement such a plan, but the devil is inthe details of how the premium subject to transition is calculatedand carried forward from year to year. Basic logic for a plan thatcaps annual premium increases might be as follows:1. Calculate P 0 , the premium on current rates at the currentTVI. P includes premium for miscellaneous coveragesand endorsements, but does not include expensefees. Premium for endorsements added during the currentterm is restated as full-term premium on currentrates.2. Calculate P 1 , the premium on proposed rates at the currentTVI, for the standard policy coverages and only endorsementsthat are effective before the renewal date (in otherwords, on an “apples to apples” basis whereby premiumfor new additional coverages is not compared againstcurrent premium totals). P 1 also excludes expense fees.3. The premium change factor is the ratio of the premiumon proposed rates to premium on current rates less unity:H = P 1¡ 1: (<strong>16</strong>)P 04. If the premium change factor exceeds M, theselectedmaximum premium increase, let transition factorT 0 = M H : (<strong>17</strong>)5. Multiply each peril partial base premium by T 0 in developmentof final policy premium. Store T 0 with policy
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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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2 AN EXAMINATION OF THE INFLUENCE O
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10 AN EXAMINATION OF THE INFLUENCE
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AN EXAMINATION OF THE INFLUENCE OF
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RISKINESS LEVERAGE MODELSRODNEY KRE
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RISKINESS LEVERAGE MODELS 33There a
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RISKINESS LEVERAGE MODELS 59APPENDI
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DISCUSSION OF A PAPER PRESENTED AT
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RISKINESS LEVERAGE MODELS 63known t
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RISKINESS LEVERAGE MODELS 79REFEREN
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RISKINESS LEVERAGE MODELS 81EXHIBIT
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RISKINESS LEVERAGE MODELS 83
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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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THE APPLICATION OF FUNDAMENTAL VALU
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A NEW METHOD OF ESTIMATING LOSS RES
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ARCHITECTURE FOR RESIDENTIAL PROPER
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INCORPORATION OF FIXED EXPENSESGEOF
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DISCUSSION OF PAPER PUBLISHED INVOL
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APPLICATION OF THE OPTION MARKET PA
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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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PRESIDENTIAL ADDRESS 749just lookin
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PRESIDENTIAL ADDRESS 751The quantif
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PRESIDENTIAL ADDRESS 753me keep my
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MINUTES OF THE 2005 CAS ANNUAL MEET
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MINUTES OF THE 2005 ANNUAL MEETING
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REPORT OF THE VICE PRESIDENT-ADMINI
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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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