1999 CAS RATEMAKING SEMINAR1999 CAS RATEMAKING SEMINAR

PRODUCT DEVELOPMENTPRODUCT DEVELOPMENT(MIS - 32)(MIS - 32)

BETH FITZGERALD, FCAS, MAAA

Product DevelopmentProduct Development

Assume Product Need Is Identified What is the Process? Examples: Employment-Related Practices

Liability & Auto Services Market Segment

Viewpoint of Actuary

Outline of ProcessOutline of Process

Business Case Proposal Policy Form Development Rule / Loss Cost Development Statistical Impact Marketing / Sales Plans Filing Preparation Announcement to Customers

Business Case ProposalBusiness Case Proposal

Product Description Business Risks Financial Analysis

Business Case ProposalBusiness Case Proposal

Revenue Projections estimate number of customers how product is to be priced

Expense Projections initial R&D of product maintenance of product IS costs include expenses from all departments (Finance,

Marketing, Sales, Legal, Government)

Policy Form DevelopmentPolicy Form Development

Research coverages Discuss potential coverages for inclusion in

product Draft policy forms & endorsements Discuss with Insurer Panels, Agents, Brokers,

Risk Managers Legal Approval

Rule Development - Other Than Rule Development - Other Than Premium DeterminationPremium Determination

Definitions Eligibility Rounding premium Minimum premium Additional / return premium Cancellations Description of basic and optional coverages

Rule Development - Premium Rule Development - Premium DeterminationDetermination

Decide on rating structure for basic coverage premium practicality vs. accuracy exposure base classification plan vary rates by state, territory?

Decide on rating structure for optional coverages adjust basic premium additively or multiplicatively? ILF’s, deductible relativities, co-payment relativities additive dollar amounts for additional limit of insurance

Manual Rules reviewed by Insurer Panels & Legal

Pricing of Loss Costs / RelativitiesPricing of Loss Costs / Relativities

Understand coverages - inclusions, exclusions, endorsements

Data needs Data availability Decide on methodology Discuss methodology with Insurer Panels

Statistical ImpactStatistical Impact

Determine future ratemaking statistical needs Balance data needs with practicality / cost of

data collection May collect more detail than used in rating

(e.g. territory, individual class) Discuss with IS & Insurer Panels

Future RatemakingFuture Ratemaking

Determine report system requirements Test new or revised report systems Determine ratemaking methodology for

updating pricing short - term long - term