Page 41 - ic92 actuarial

Foundations of Casualty Actuarial Science

definitions should be mutually exclusive and exhaustive,
and the opportunity for administrative error should be
minimized.

127. Social Criteria
So far in this section we have discussed the actuarial
goals of classification and some of the operational
difficulties. Another limitation on classification is "social
acceptability" or social considerations.

128. "Controllability" may be a desirable rating-variable
characteristic. A controllable variable is one that is under
the control of the insured. Controllable variables may
increase administrative costs. If the insured has control
over premium costs, the insured can manipulate the rating
system and insurers may require verification.

129. Risk classification may be affected by constitutions (state
and federal), statutes, and regulations. Generally,
constitutions govern statutes and statutes govern
regulations. Constitutions are usually very general,
statutes are more specific, and regulations may be the
most specific.

130. Automobile liability insurance classifications can be
categorized into the following types of variables: (a) age-

Sashi Publications - www.sashipublications.com 41

Copyright@ The Insurance Times. 09883398055 / 09883380339