Representations of Claims Arising From A Risk Portfolio

Extract

This paper is concerned with certain problems which arise in the course of rate fixing for a portfolio comprising a large number of direct risks.

This is, of course, the traditional territory of the actuary and there is no lack of papers discussing specific aspects of the subject, such as the analysis of claim frequency, or the fitting of distributions to claim amount data. Equally there is a literature which discusses in general terms the philosophy which it is suggested should be followed by the non-life insurance ratemaker. It is when one tries in practice to follow a logical and consistent path through from portfolio records to rates that gaps in the literature become apparent and it is with covering these gaps, or at least some of them, that the present paper is concerned.

It is not the concern of the author in this paper to attempt to describe the entire ratemaking process. That there is no reference to the analysis of office expenses, commissions, or to the application of “judgment” or “experience” should not be taken to imply that these aspects are not susceptible to the kind of approach advocated here. Attention here is focused upon what might in a sense be regarded as the most basic aspect: the claim process or experience.

In many insurance operations the position which seems to be developing is that there is no lack of necessary computer hardware, and in principle, of data: the difficulties arising relate more to the form in which data should be retained and extracted, and the manner in which it should be used to assist in rate-making.