# B.14.Gillam & Snader 3

 Why demand for high ded policies incr? trend toward self-ins to provide savings to insdinsd tx saving since liability for ins ded on unpd clm is tax dedpositive cash flow to insrreduction of assessments for residual mkt pools Deductible vs excess policies ded usually for smaller retentions for risk w high frequency. Insr settles loss and is reimb for dedexcess usually for high retention, self ins. Insr only settles clms over retention Calculation of ELR (ded / xs policy) straight ded: k = [Lr + (N-n)r] / Lk = LER, N = # clm, n = # clm < retention, Lr = loss < retdisappearing ded: k = {Lr + LR - (LR - rNR) / [R / (R - r)]} / LLR = loss btwn r and R, NR = # clms btwn r and Rfk = tempered LER (insr still responsible if insd can't pay) Determination of discount (D = 1 - P' / P) (ded policy) assume A, T, P proportional to Passume other exp are fixed portions of full cov premP = [(E - a)P + eP] / (1 - A - T - p)P' = [(1 - fk)(E - a)P + eP] / (1 - A - T - p)D = fk(E - a) / (1 - A - T - p) Determination of discouts (xs policy) case 1: A, T, p, i, u, gh prop to P, other are fixedP = (EP + eP) / (1 - A - T - p - i - u - gh)P' = [(1 - fk)EP + eP] / (1 - A - T - p - i - u - gh)D = fkE / (1 - A - T - p - i - u - gh)case 2: A, T, p prop to P, i, u, gh prop to XS loss, other fixedD = fkE(1 + iE + uE + ghE) / (1 - A - T - P) Determination of discount (ex-med covg) LER only applies to med PPex-med PP = total PP - portion of med PPwhy portion: adverse selctn, may req pmt of some med, liableonly A and T are prop to P, other expenses not reducedP = (E + eP) / (1 - A - T)P' = (E - kEM + eP) / (1 - A - T)D = [(1 - A - T - e) / (1 - A - T)] * (kEM / E) Adjustment under retro rating c' = adjusted loss conversion factor so that loss dollars provided by c = loss dollars from c of ex-med pollet J = c - 1, J' = c' - 1 = J * E / (E - kEM)J' = J(1 - A - T - e) / [(1 - D)(1 - A - T) - e] AuthorExam8 ID166072 Card SetB.14.Gillam & Snader 3 DescriptionFundamentals of Individual Risk Rating, Part III Updated2012-08-15T01:09:16Z Show Answers