Renewing Insurance
Although property insurance is typically a one-year contract, Table 1.4 suggests that insureds tend to renew; this is typical of general insurance. For renewing insureds, in addition to their rating variables we have their claims history and this claims history can be a good predictor of future claims. For example, Table 1.4 shows that insureds without a claim in the last two years had much lower claim frequencies than those with at least one accident (0.310 compared to 1.501); a lower predicted frequency typically results in a lower premium. This is why it is common for insurers to use variables such as NoClaimCredit in their rating. We will explore this topic further in Chapter 8 on experience rating.
Portfolio Management
Of course, the main story line of 2010 experience was the large claim of over 12 million US dollars, nearly half the claims for that year. Are there ways that this could have been prevented or mitigated? Are their ways for the fund to purchase protection against such large unusual events? Another unusual feature of the 2010 experience noted earlier was the very large frequency of claims (239) for one insured. Given that there were only 1,377 claims that year, this means that a single insured had 17.4 % of the claims. This also suggestions opportunities for managing the portfolio, the subject of Chapter 10.
Loss Reserving
In our case study, we look only at the one year outcomes of closed claims (the opposite of open). However, like many lines of insurance, obligations from insured events to buildings such as fire, hail, and the like, are not known immediately and may develop over time. Other lines of business, including those were there are injuries to people, take much longer to develop. Chapter 10 introduces this concern and loss reserving, the discipline of determining how much the insurance company should retain to meet its obligations.