Evening everybody, Can't quite get my head around the mark scheme for this one. - Exposure rating to calculate a risk premium for cargo insurance policy... ...but not one mention of exposure curves in the mark scheme (deriving them, using them or selecting them), which instead seems to focus on rating factors! - Perhaps i'm getting confused as original loss curves are less common for direct pricing which this question is about? - The specific policy may have a different limit profile to other insured's data for that class, so I thought you'd use an exposure curve to allow for this. - Essentially the mark scheme says you pick an exposure measure (value of cargo to be insured) - and then apply some kind of rate to this to get the premium. If one of the reasons of using exposure rating is lack of credible data, then how can one derive this 'rate' / adjust the rate from other policies to the specific rating factors /risk profile of this particular cargo policy? You seem to be able to score highly on this question by avoiding this issue altogether, but I'd be interested to know how this works still! Without trying to complicate things further, deriving the rate from past experience of the whole cargo book sounds like....experience rating (in the broader sense) and not exposure rating. A lot to digest here i know, but any help on any of my questions here would make me feel alot better about this subject! Thanks
I assume you mean part (iii) for exposure rating, not part (ii)? Yes exposure curves have an obvious use in reinsurance pricing, but you could also use them for direct pricing as you suggest. In fact the examiners' report does mention it. Mind you, remember there are plenty of other marks available for more general steps in the pricing process (eg collecting data, on-levelling, allowing for cats, etc), so I wouldn't expect exposure curves to score a huge number of marks in the exam. It would simply be a half mark bullet point, something like 'adjust for differences in deductibles and limits, eg using exposure curves'. Personally, I agree you could also argue for the use of exposure curves in part (ii) under your broader definition of experience rating (assuming the limits for this risk are very different to the other risks in the insurer's portfolio of course). Again though, I wouldn't expect it to score more than half a mark say. Have you read our ASET? We go into some detail there explaining: the difference between exposure rating and experience rating the ambiguity in the term 'experience rating', and how to deal with it in the exam how to build up marks for a typical pricing question of this sort.
