Further considerations when rating

Question 1

Other influences on rating 5

Answer 1

1. The availability of capital to support new business
2. The impact of reinsurance capacity
3. The sophistication of sales and quote systems - complicated flexible systems cost more and thus will need to be recouped from premiums
4. The demands of regulators in the rating area
5. Relationships with particular distributors or brokers
   Differences between the direct approach and more traditional routes - methods of sale

Question 2

Reasons the premium charged by an insurer is different from the theoretical office premium: 9

Answer 2

1. Individual risk rating for unique or commercial risks, or those with limited experience
2. Terms and conditions and other coverage changes
3. Market considerations, including business objectives, competitive pressures and market conditions
4. Difficulty in establishing the technical price where classes are volatile and significant judgement is required
5. Inertia pricing - charging loyal customers more than new business
6. Market acceptability
7. Use of no-claims discounts
8. Profit optimisation
9. Pricing and insurance cycle

Question 3

Requirements of rating factors 9

Answer 3

1. Define the risk clearly
2. Do not correlate too closely with other rating factors
3. Are practical to obtain and record
4. Are objective
5. Are verifiable and preferably factual
6. Are acceptable to the policyholder
7. Are non-manipulable
8. Are acceptable to the market
9. Are allowed by the regulator