So, in general, this is a kind of newb question, but i'm not totally certain about how to handle this situation.
In a prospectice pricing exercise, is there any reason not to use what the actual experience has been when selecting premium trend? So, for a simple example, say you have recently launched a product in your state, and only have, say, four quarters of experience. If your average written premium in the first quarter of launch was say $30 for medpay, but your average written premium now, say, in the 5th quarter since the launch is $33 why would you not simply say, for the first quarter the premium trend selection should be 10% because 33/30-1 = 10% ?
Same question applies to losses too. If your average pure premium was say $20 in the first quarter, and the average pure premium for claims now is $22? Would you not use 10%.
I know this is newb, but why would you not want to accurately bring to current when selecting trend. it seems the real key of the exercise is selecting what types of premium and frequency/severity loss trends you might actually see in the future. So when would you disregard your own experience? Perhaps for losses you would thing your experience is not representative of the future, so you might use an industry or other state experience to bring past claims to current, but your premium trend, it was what it was right?
Thanks!
Gareth Keenan
In a prospectice pricing exercise, is there any reason not to use what the actual experience has been when selecting premium trend? So, for a simple example, say you have recently launched a product in your state, and only have, say, four quarters of experience. If your average written premium in the first quarter of launch was say $30 for medpay, but your average written premium now, say, in the 5th quarter since the launch is $33 why would you not simply say, for the first quarter the premium trend selection should be 10% because 33/30-1 = 10% ?
Same question applies to losses too. If your average pure premium was say $20 in the first quarter, and the average pure premium for claims now is $22? Would you not use 10%.
I know this is newb, but why would you not want to accurately bring to current when selecting trend. it seems the real key of the exercise is selecting what types of premium and frequency/severity loss trends you might actually see in the future. So when would you disregard your own experience? Perhaps for losses you would thing your experience is not representative of the future, so you might use an industry or other state experience to bring past claims to current, but your premium trend, it was what it was right?
Thanks!
Gareth Keenan
Retrospective Trends in general, a newb question.
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