Page 96 - ic92 actuarial

The Insurance Times

Q1. Discuss the concept of manual rate making.

Ans. From the earliest days, the premium charges have been
based upon specific characteristics of the risk being
priced. The characteristics and classifications assigned
to each risk type were written down in a book or manual
for use by the underwriters.

While these early manuals were meant to provide
general guidance to the underwriters in setting down
the rates, they also contained many of the elements
associated with present day property and liability rate
manuals including recognition of differing loss costs
between classifications, expense provision, and provision
for adverse deviation and profit.

Over the years, as the insurance risks have become
complex, rate manuals have evolved to the point that,
for many lines of insurance, they provide the exact
premium to be charged for providing a specific coverage
to a specific risk for a specific period.

However, one should not confuse the precision with

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