At the most basic level, initial rate-making involves looking at the frequency and severity of insured perils and the expected average payout resulting from these perils. Thereafter an insurance company will collect historical loss-data, bring the loss data to present value, and compare these prior losses to the premium collected in order to assess rate adequacy.Brown RL. (1993). Introduction to Ratemaking and Loss Reserving for Property and Casualty Insurance. ACTEX Publications. Loss ratios and expense loads are also used. Rating for different risk characteristics involves—at the most basic level—comparing the losses with "loss relativities"—a policy with twice as many losses would, therefore, be charged twice as much. More complex multivariate analyses are sometimes used when multiple characteristics are involved and a univariate analysis could produce confounded results. Other statistical methods may be used in assessing the probability of future losses.
at the most basic level initial rate-making involves looking at the frequency and severity of insured perils and the expected average payout resulting from these perils thereafter an insurance company will collect historical loss-data bring the loss data to present value and compare these prior losses to the premium collected in order to assess rate adequacybrown rl (1993) introduction to ratemaking and loss reserving for property and casualty insurance actex publications loss ratios and expense loads are also used rating for different risk characteristics involves—at the most basic level—comparing the losses with "loss relativities"—a policy with twice as many losses would therefore be charged twice as much more complex multivariate analyses are sometimes used when multiple characteristics are involved and a univariate analysis could produce confounded results other statistical methods may be used in assessing the probability of future losses