We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Pricing, Investment Income, and Underwriting Risk: A Stochastic View.
- Authors
Witt, Robert Charles
- Abstract
Statistical sampling models are used to analyze pricing and availability problems in automobile liability insurance. The analysis suggests that underwriting risk is not adequately recognized in the pricing process. In practice, the risk charge (the provision for underwriting profit and contingencies) is related to the class mean pure premium rather than to the variability in the class pure premium distribution. The expense loading formula is also shown to be economically deficient. These pricing deficiencies may partially explain why some classes of risks have difficulty obtaining coverage in the standard voluntary market. Such availability problems could be alleviated if risk charges were based on a better statistical foundation and if an economically rational expense loading formula were used. Furthermore, it is shown that the direct inclusion of investment Income in a ratemaking formula will not necessarily reduce rates. In fact, rates could be increased under certain specified conditions. Finally, a theoretical criterion for classifying risks and a formula for developing class risk charges are suggested.
- Subjects
PRICING; INVESTMENT income; INSURANCE; INCOME; STOCHASTIC analysis
- Publication
Journal of Risk & Insurance, 1974, Vol 41, Issue 1, p109
- ISSN
0022-4367
- Publication type
Article
- DOI
10.2307/252095