I have a query regarding inflation allowance when determining the experience premium.
Suppose a large fleet policy is renewing on 1 November 2015 and..
* cover is on a annual basis
* the last 5 years of claims is used to determining the experience premium.
* the risk has not changed materially over the last 5 years
* frequency inflation is zero
* assume claims is fully paid on date of loss (to avoid the additional complexity involving paid/outstanding
* assume no IBNR or IBNER
So, the cover period for the last 5 years are:
1 Nov 2010 - 31 Oct 2011
1 Nov 2011 - 31 Oct 2012
1 Nov 2012 - 31 Oct 2013
1 Nov 2013 - 31 Oct 2014
1 Nov 2014 - 31 Oct 2015
My rates of are on a calendar year basis so past inflation is:
Year Injury Damage
2009 3% 2%
2010 3% 2%
2011 4% 2%
2012 4% 2%
2013 5% 3%
2014 5% 3%
2015 5% 3%(up to 1 November 2015)
Future inflation is 5% for injury and 3% for damage
What is the best way to adjust a claim with date of loss on 1 Feb 2011 with an injury cost of $100k and a damage cost of $20k
My approach would be as follows:
*Injury claim*
1 Nov 2010 - 31 Oct 2011
Claim paid 3 months after renewal date so will get 11 months of inflation for 2011 year so 100k*1.04^(11/12)
1 Nov 2011 - 31 Nov 2015
100k*1.03^(11/12)*(1.04*1.05*1.05)*(1.05^(11/12))
Future Inflation
The premium is for the period 1 Nov 2015 to 31 Oct 2016 so I assume that any claims will occur halfway through this period so add half a year of inflation (future) to get claim in updated for inflation
100k*1.03^(11/12)*(1.04*1.05*1.05)*(1.05^(11/12))*(1.05^.5)
Similar approach for the damage component
Suppose a large fleet policy is renewing on 1 November 2015 and..
* cover is on a annual basis
* the last 5 years of claims is used to determining the experience premium.
* the risk has not changed materially over the last 5 years
* frequency inflation is zero
* assume claims is fully paid on date of loss (to avoid the additional complexity involving paid/outstanding
* assume no IBNR or IBNER
So, the cover period for the last 5 years are:
1 Nov 2010 - 31 Oct 2011
1 Nov 2011 - 31 Oct 2012
1 Nov 2012 - 31 Oct 2013
1 Nov 2013 - 31 Oct 2014
1 Nov 2014 - 31 Oct 2015
My rates of are on a calendar year basis so past inflation is:
Year Injury Damage
2009 3% 2%
2010 3% 2%
2011 4% 2%
2012 4% 2%
2013 5% 3%
2014 5% 3%
2015 5% 3%(up to 1 November 2015)
Future inflation is 5% for injury and 3% for damage
What is the best way to adjust a claim with date of loss on 1 Feb 2011 with an injury cost of $100k and a damage cost of $20k
My approach would be as follows:
*Injury claim*
1 Nov 2010 - 31 Oct 2011
Claim paid 3 months after renewal date so will get 11 months of inflation for 2011 year so 100k*1.04^(11/12)
1 Nov 2011 - 31 Nov 2015
100k*1.03^(11/12)*(1.04*1.05*1.05)*(1.05^(11/12))
Future Inflation
The premium is for the period 1 Nov 2015 to 31 Oct 2016 so I assume that any claims will occur halfway through this period so add half a year of inflation (future) to get claim in updated for inflation
100k*1.03^(11/12)*(1.04*1.05*1.05)*(1.05^(11/12))*(1.05^.5)
Similar approach for the damage component
Experience Price Premium Query