Page 11 - Personal Underwriting Mandates & Guidelines - Binder - Version 3

Policyholder claims history and uninterrupted previous insurance
A rating model based on previous claims/losses has become the favoured method of pricing risks opposed to the more conventional method of using No Claims Bonus (NCB)/Claim Free Group (CFG) categories.
The use of claims and/or losses in the past 36 months enhances our actuarial team’s ability to predict future behaviour and price accordingly, and therefore all Hollard black box products are actuarially rated and modelled on this principle.
In addition to this, the number of years of uninterrupted insurance cover plays an equally important role.
Number of claims (black box rating model)
The number of claims suffered in the past 0 to 12 months, 13 to 24 months and 25 to 36 months combined with the number of years of uninterrupted comprehensive cover determines to what extent the premium will be loaded or discounted at inception of the policy.
The renewal process for the products based on a claims experience model will be automated in the future. The systems will automatically adjust the number of claims in the renewal cycle to include any new claims during the 12 months of the pre-renewal period. The systems will also age previously recorded claims. Depending on the development cycle of each system, there may be manual intervention required from users.
The claims are then adjusted as follows:
NCB/CFG rating model
Returning to the more conventional rating model used for new business, the insured will not qualify for a NCB/CFG discount unless proof of previous claims history is provided. For example, where the client has been overseas and cannot provide proof, no starter bonus may be given.
Products that are not on the black box rates will not be aligned or adjusted at renewal.
Inflating the NCB/CFG must not be used as a discount tool for the following reasons:
○ we lose the ability to accurately evaluate client behaviour for the various NCB/CFG categories as well as whether the discount level per category is and remains relevant
○ we do not retain good clients as they can secure cheaper quotes elsewhere and therefore change insurer. The reverse is also true; poor clients will stay as they will not be able to secure cheaper insurance elsewhere
○ it will result in unsustainable premiums which necessitate annual general increases.
General
Number of claims prior to renewal
Number of claims after renewal
0-12 months
1
0-12 months
2
12-24 months
0
1
24-36 months
12-24 months
2
24-36 months
0
If the number of claims during current renewal period are:
2
10 Personal Underwriting Mandates & Guidelines – Binder – Version 3