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Foundations of Casualty Actuarial Science

variables are added, at a tolerable cost, as long as they
result in improved overall accuracy. There are several
other practical considerations in selecting rating variables.

The variables should be intuitively related to costs. Age,
in life insurance, is intuitively related to costs, whereas
age in automobile insurance is less so. When caught up
with cost verifiability issue, it is better to use measures
that are available for another purpose.

E.g, payroll and sales records are kept for other purposes,
such as taxation. These may be manipulated for those
purposes, but are discouraged by the risk of criminal
penalties or adverse relations with suppliers or bankers.

C. Social Criteria - There are certain limitations on
actuarial goals, apart from operational difficulties. A
number of key issues such as 'causality' , 'controllability',
and 'affordability' have been the subject of public
concerns.

Privacy is an important concern, as people are often

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