Page 97 - ic92 actuarial

Foundations of Casualty Actuarial Science

accuracy. The accuracy can only be judged in the light
of actual loss experience. So, no matter how complex
the classification and rating process becomes, the manual
rates are still estimates of average costs based upon a
combination of statistical methods and professional
judgement.

Q2. Write short notes -

a) Exposure - The basic rating unit underlying an
insurance premium is called an exposure. The unit of
exposure will vary based upon the characteristics of the
insurance coverage involved. E.g, for an automobile
insured for a period of twelve months is a car-year. A
single policy covering three automobiles for a term of
six months is 1.5 car years.

The most commonly used exposures are : (i) written
exposures - those units of exposures written during the
period in question, (ii) earned exposures - the exposure
units actually exposed to loss, and (iii) in-force
exposures- the exposure units exposed to loss at a give
point of time.

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