How would you describe the effect?--Audits cause the need to apply premium development factors to premiums?
Also, I have a question about one effect in particular
One effect for lines whose exposure is initially estimated and then determined again after policy expiration:
CY EP doesn't match as well with AY losses when the exposure level is changing. This is because CY EP includes the effects of audits on prior years and does not include the effect of audits on the current year.
Is this right and if it is, why is this right?? I know that CY EP already doesn't match perfectly with AY losses. So lines with audits cause CY EP to match even less with AY losses?
Also, I have a question about one effect in particular
One effect for lines whose exposure is initially estimated and then determined again after policy expiration:
CY EP doesn't match as well with AY losses when the exposure level is changing. This is because CY EP includes the effects of audits on prior years and does not include the effect of audits on the current year.
Is this right and if it is, why is this right?? I know that CY EP already doesn't match perfectly with AY losses. So lines with audits cause CY EP to match even less with AY losses?
Effect of Premium Audits on Ratemaking
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