Chapter 6 Pricing Large Commercial Risks (Role of the actuary (Calculate…
Pricing Large Commercial Risks
Role of the actuary
Calculate minimum technical rate
Act as a "second pair of eyes"
Assess the adequacy of rates set by the lead market
sign off pricing and other terms and conditions as part of the licence agreement
general advice to underwriter
design of rate monitoring process and systems that capture relevant data
negotiation with third parties to explain rate:
client risk managers
underwriters and negotiators
Understanding the client
Why seeking insurance
Multinational, requiring cover in multiple territories?
Change in process used by client?
Level of risk management?
Similarity to other clients already priced?
Previous claims history.
New business or renewal.
Whether client has changed significantly over time.
Calculating a technical price
The actuary should:
understand the aspects of risk and cover that affect cashflow
calculate the prices based on data available
Methods used are standard techniques such as:
burning cost (actual historical claims, expressed as a rate per unit exposure)
frequency / average claim approach
Price may be adjusted after negotiations. Negotiations can include:
Before accepting risk actuary should consider existing risk and control structure (underwriting guidelines and accumulation control)
Data can be held by client/insurer/broker/agent:
Whole portfolio of large risks should be managed
ultimate expected performance of recent underwriting years
rate increase on renewed risk
performance on lapsed risks
expected performance on new business
how total technical premium compares to total actual premium