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Auto Insurance Fundamentals: Coverages and Ratemaking

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Auto Insurance Fundamentals: Coverages and Ratemaking. Michael R. Powers ... Auto Insurance. Coverages. Bodily Injury Liability (BI) Property Damage Liability (PDL) ... – PowerPoint PPT presentation

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Title: Auto Insurance Fundamentals: Coverages and Ratemaking


1
Auto Insurance Fundamentals Coverages and
Ratemaking
  • Michael R. Powers
  • The Fox School, Temple University

2
Auto Insurance Coverages
  • Bodily Injury Liability (BI)
  • Property Damage Liability (PDL)
  • First-Party Benefits (FPB)
  • Uninsured Motorists (UM)
  • Underinsured Motorists (UIM)
  • Collision (Coll.)
  • Comprehensive (Comp.)

3
Bodily Injury Liability (BI)
  • Compensates for personal injury
  • Economic damages (medical/income-loss)
  • Non-economic damages (painsuffering)
  • Paid on third-party basis
  • Required limits in Pennsylvania
  • 15,000 per person
  • 30,000 per accident
  • Optional higher limits available

4
Property Damage Liability (PDL)
  • Compensates for physical damage
  • Auto repairs/replacement
  • Other property repairs/replacement
  • Paid on third-party basis
  • Required limit in Pennsylvania
  • 5,000 per accident
  • Optional higher limits available

5
First-Party Benefits (FPB)
  • Compensates for personal injury
  • Economic damages only (medical/income-loss)
  • Paid on first-party basis
  • Required limit in Pennsylvania
  • 5,000 medical per person
  • Optional coverages available
  • Higher limits of medical (including EMB)
  • Income-loss
  • Accidental death

6
Uninsured Motorists (UM)
  • Compensates for personal injury
  • Economic damages (medical/income-loss)
  • Non-economic damages (painsuffering)
  • Paid on first-party basis
  • Optional in Pennsylvania -- various limits
    available
  • Stacked -- all insureds autos
  • Unstacked -- one auto at a time

7
Underinsured Motorists (UIM)
  • Compensates for personal injury
  • Economic damages (medical/income-loss)
  • Non-economic damages (painsuffering)
  • Paid on first-party basis
  • Optional in Pennsylvania -- various limits
    available
  • Stacked -- all insureds autos
  • Unstacked -- one auto at a time

8
Collision (Coll.)
  • Compensates for physical damage
  • Auto and other property damaged in a collision
  • Paid on first-party basis
  • Optional in Pennsylvania -- various deductibles
    available

9
Comprehensive (Comp.)
  • Compensates for physical damage
  • Auto and other property damaged not in a
    collision (e.g., from vandalism, theft)
  • Paid on first-party basis
  • Optional in Pennsylvania -- various deductibles
    available

10
Pennsylvania Coverage Summary
11
Basic Auto Insurance Ratemaking Concepts
  • Exposure One unit of risk ( automobile)
  • Claim Frequency (Claims)/(Exposures)
  • Claim Severity ( Losses)/( Claims)
  • Pure Premium Frequency x Severity
  • ( Losses)/( Exposures)
  • Loss Ratio ( Losses)/( Premiums)

12
Losses (Often Including Allocated Loss Adj.
Expenses)
  • Calendar-Year Losses
  • All paid losses
  • change in total loss reserves
  • Accident-Year Losses
  • All paid losses
  • case reserves
  • bulk reserves (IBNR)

13
AY Loss Development
  • Loss Dev. Triangle (Hypothetical)

14
Premiums
  • Written Premiums
  • All premiums collected from new and renewal
    business in a given year
  • Earned Premiums
  • All premiums associated with coverage actually
    provided in a given year

15
Expenses
  • Written Expenses
  • All expenses gathered from new and renewal
    business in a given year
  • Earned Expenses
  • All expenses associated with coverage actually
    provided in a given year

16
Breakdown of Auto Insurance Revenue Dollar
17
Basic Ratemaking Formulas
  • Pure Premium Method
  • Dev./Trended AY Losses
  • New Rate Trended Fixed Expenses
  • (1 - v i) x Earned Exposures
  • Loss Ratio Method
  • Dev./Trended AY Losses
  • Rate Change Trended Fixed Expenses
  • (1 - v i) x Earned Premiums

18
Final Modifications
  • Increased limits factors
  • Deductible factors
  • Territorial relativities
  • Driver class relativities
  • Model-type/Model-year relativities
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