Chapter 1: Why Insurance?

How insurance works: insured transfer risiko ke insurer, insurer dpt premium. Melalui serangkaian
perhitungan, insurer akan dpt average risk lbh rendah dibandingkan original risk tiap policyholder. Ini
adlh akibat dr law of large numbers
2
2 1 1 2
𝜎𝑝ℎ
𝜎𝑖𝑛𝑠𝑢𝑟𝑒𝑟 = 𝑉𝑎𝑟 ( (𝑋1 + ⋯ + 𝑋𝑛 )) = 2 𝑛𝜎𝑝ℎ =
𝑛 𝑛 𝑛

Insurance and utility – premi hrs memenuhi:

𝐸[𝑢(𝑤𝑒𝑎𝑙𝑡ℎ − 𝐿)] = 𝐸[𝑢(𝑤𝑒𝑎𝑙𝑡ℎ − 𝑝𝑟𝑒𝑚𝑖)]
𝐿 r.v besar loss, 𝑢(𝑥) utility function yg memenuhi decreasing marginal utility of money (risk
averse)
𝑢′ (𝑥) > 0
𝑢′′ (𝑥𝑥) < 0

What makes a risk insurable:

1. Economically feasible – utility gained bs meng-cover biaya” spt komisi penjualan, expense
kantor, dll.
2. Calculable economic value – cth ‘ya’: asuransi tabrakan mobil, datanya tersedia banyak. Cth
‘tdk’: asuransi nuclear meltdown: tdk ada data yg banyak, ditanggulangi dg perjanjian risk-
sharing.
3. Definite loss – mencegah manipulasi & moral hazard. Cth ‘definite’: kecelakaan mobil dg surat
polisi, kematian. Cth ‘tdk’: disability, krn tdk jelas kriteria bs kembali bekerja dan bagaimana
memantau malingering.
4. Random loss in nature – yg diasuransikan adlh kejadian yg diluar control policyholder.
5. Homogeneous exposure in any rate class – expected loss tiap unit di suatu kelas hrs sama dg
expected loss sembarang unit di kelas tsb. Ini bs tdk terpenuhi dlm kasus anti-selection by
policyholder, i.e. policyholder py lbh banyak informasi drpd insurer, yg lalu dimanfaatkan utk
price advantage.
6. Spatially & temporally independent exposure units – claim suatu policyholder tdk
mempengaruhi claim policyholder lain.

Insurance from policyholder pov tdk menghslkan profit. Dlm speculation ada transfer risk ke
speculator, dimana motive dr speculator adlh peluang menghslkan profit. Dlm gambling risiko
diciptakan.

Risk: ukuran variabilitas antara actual & expected outcome.

Peril: alat utk mengidentifikasi cause of risk. Cth: kebakaran, tabrakan, [encurian, bencana alam, dll.
Hazards: factor” yg berkontribusi pd peril. Cth: lokasi, struktur, moral hazard spt ketidakjujuran dll.

Other reasons membeli asuransi:

1. Legal requirements
2. Lenders’ requirements
3. Commercial requirements
4. Special expertise
5. Taxation
Chapter 2: Property/Casualty Coverages
Automobile insurance
1. Section A / liability ins / third party liability / BI/PD (bodily-injury/property damage) –
Provides coverage to the PH jk, sbg sopir dr kendaraan yg dicover, PH melukai pihak ketiga
atau merusak properti pihak ketiga. Properti PH tdk dicover oleh asuransi ini.
2. Section B / medical benefits / medical payments (tort) / personal injury protection (no-
fault) / accident benefits (Canada) – Provides coverage to the PH & family thd injury dr
kecelakaan yg disebabkan oleh PH atau kecelakaan apapun di yurisdiksi no-fault.
3. Uninsured & underinsured motorist coverage – Provides protection for the PH & family jk
terluka oleh unidentified/uninsured/underinsured motorist.
4. Section C / collision & other than collision (OTC) ins – Insurer membayar kerugian atas
kerusakan kendaraan PH dlm kecelakaan, biasanya ada deductible.
Subrogation (tort): jk another driver yg bersalah, insurer bs menuntut ganti rugi cost-nya dan
jg deductibles utk PH. Mekanisme ini menurunkan premi collision ins dan menaikkan premi
liability ins.
Salvage: jk collision claim requires paying the full value atas kendaraan, maka sisa” kendaraan
tsb jatuh ke kepemilikan insurer (salvage value). Jk salvage value > pembayaran insurer ke PH,
insurer hrs tambah pembayarannya setdknya sebsr selisihnya (insurer tdk bs dpt profit dr
salvage provision).
OTC: hail fire, vandalism, stone chips, theft, dll, kecuali war, act of terrorism, due to wear &
tear, road damage to tires, radioactive contamination, due to discharge of nuclear weapon, and
collision. Jk coverage diberikan utk semua listed tsb kecuali yg diexclude maka disebut
comprehensive coverage. Jk hy bbrp maka disebut specified perils.
All risk coverage: gabungan collision & OTC.
Umumnya 2 pertama diwajibkan oleh hukum yg mensyaratkan pemilik kendaraan utk membeli
asuransi yg memenuhi financial responsibility limits.
Tipe” legislation defining auto ins benefit:
 Tort/at fault system: benefit dikeluarkan hy jk insurer percaya bhw insured-nya bersalah atas
kecelakaan terkait atau jk pihak yg terluka menuntut & membuktikan bhw insured bersalah.
Umumnya small claims jd highly overcompensated dan small claims hy dikompensasi 30% dr
biaya sehrsnya. Terlebih, hy 25% premi yg akhirnya sampai di pihak terluka, sisa 75% masuk
ke biaya pengadilan dll.
 No fault system: pihak terluka tdk perlu menuntut ataupun membuktikan pihak lain bersalah
atas kecelakaan terkait. Benefit akan dibayarkan oleh injured party’s own insurer. Premi jd
jauh lbh murah krn mengeliminasi legal fees dll.
 Threshold no-fault: look first to no fault system (own insurer). Jk injuries melebihi threshold,
maka bs tempuh tort settlement.

Homeowners insurance
1. Coverage A – proteksi thd kerusakan akibat perils tertentu atau dg basis all-risk dg limit
tertentu.
Doctrine of proximate cause: suatu kerugian dicover hy jk covered peril is the proximate
cause of a covered sequence, yaitu jk peril tsb menginisiasi suatu unbroken sequence of events
yg mengakibatkan covered consequence.
Biasanya ada deductibles utk exclude klaim” kecil yg tdk ekonomis atau mahal di biaya
administrasi, jg mendorong policyowner lbh responsible.
Ada mekanisme subrogation, misal kebakaran akibat wiring problem, pihak asuransi bs
tuntut ganti rugi ke perus wiring.
Coinsurance: asuransi membayar suatu bagian dr kerugian. Jk asuransi lbh bsr sama dg 80%
nilai rumah pd waktu kerugian, maka asuransi tsb dianggap asuransi utk full value:
𝑆𝐼
𝐼(𝑋) = min {𝑆𝐼, × 𝑙𝑜𝑠𝑠}
0.8 𝐹𝑉
𝐼(𝑋) insurance for loss 𝑋, 𝑆𝐼 sum insured, dan 𝐹𝑉 full value.
 (+) (-)
 Encourage insurers to value by  Konsepnya tdk mudah dimengerti
penalizing under insurance  Policyholder yg beli asuransi less than
 Premi lbh adil. Jk loss skewed to smaller full coverage hy dipenalti jk tjd claim.
claims tp premi berbanding lurus dg  Coinsurance 80% atau persen brppun di
nilai asuransi, tanpa coinsurance, org dg bawah 100% mendiskriminasi org” yg
asuransi lbh kecil jd lbh berisiko bg beli higher level of insurance, pdhl
insurer. sehrsnya ini diencourage
 The overall rate level can be lower but  Tingginya inflasi nilai real estate
still adequate. Ini akibat dr poin 2, krn membuat homeowner scr tdk sadar jatuh
tiap org bayar sesuai risikonya. di bwh coinsurance %
 Penggunaan coinsurance <100% scr tdk
lgsg merekomendasikan policyowner utk
beli asuransi less than full coverage.
Mslh inflasi diatasi insurer dg menaikkan limit tiap tahun utk mengejar inflasi.
2. Coverage B – memberikan specific amount of ins thd garage atau struktur lain yg terpisah dr
properti utama, umumnya senilai 10% dr coverage properti utama (bs lebih dg premi lebih).
3. Coverage C – insure the actual cash value of the policyholder’s personal property & isinya up
to a defined policy limit, umumnya 40-50% insured value of the house.
Inside limit for certain losses: limit penggantian utk barang tertentu. Misal kasus pencurian
atau hilang cash. Misal insureds ingin full insurance atas perhiasan, silverware, atau barang
seni, maka dibuatlah schedule (extra premium apply). Kasus kerugian atas ketiga barang
tersebut akan diganti sesuai nilai yg tercantum di schedule, bukan sesuai nilai pasarnya saat
itu. Benefit ini disebut valued benefit krn tdk ada loss distribution utk hal ini.
Coverage ini jg berlaku ketika personal items tsb berada di luar rumah, misal saat traveling.
4. Coverage D – provides coverage for additional living expense & loss of rental income. Asuransi
ini membayar fair rental value of alternative accommodation saat properti sedang diperbaiki
akibat kerusakan dr covered peril. Umumnya limitnya 20% dr coverage propertinya.
5. Liability coverage – coverage atas liability yg muncul ketika third party terluka atau jk
properti third party rusak saat sdg berada di properti PH atau keadaan tertentu. Spt auto ins,
insurer bd defend PH di persidangan.

Tenants package – utk PH yg menyewa, bukan memiliki rumah sendiri. Mengcover hampir semua di
homeowners ins tp disesuaikan. Misal jk gedung apartemen rusak krn kebakaran dll, concern tenants
hy barang pribadinya saja.

Workers compensation – workers gave up their rights to sue their employers terkait occupational
accident or sickness in return for a no-fault benefits on a pre-defined or scheduled basis. Sblm 1895,
workers hrs menuntut employer-nya utk dpt kompensasi, lalu terbentur kesulitan berikut:
 Doctrine of contributory negligence: worker turut berkontribusi atas tjdnya injury/sickness
 Fellow-servant doctrine: injury/sickness disebabkan oleh fellow-worker
 Assumption-of-risk doctrine: worker sdh tahu bahaya yg terkandung dlm pekerjaan tsb
Tujuan dr workers compensastion:
 Perlindungan menyeluruh atas occupational injury/disease
 Proteksi substantial atas loss of income
 Medical care & rehabilitation service yg memadai
 Encouragement of safety
 An efficient & effective delivery system for benefits & services
Umumnya worker dpt compensastion benefits berikut:
 Medical care
 Disability income. Degree of disability: (1) temporary but total, (2) permanent & total, (3)
temporary & partial, (4) permanent but partial.
 Death benefits. Includes biaya pemakaman dan cash-income payments to dependents tertentu.
 Rehabilitation services & benefits
Benefits dibayar oleh insurer atau employers yg ‘qualified self-insurers’.

Fire insurance
1. Fire ins – proteksi atas kerugian/kerusakan bangunan & personal property akibat fire,
lightning, windstorm, hail, explosion, dll. Coverage provided for direct loss (kerusakan
properti) & indirect loss (loss of income atau extra expenses akibat loss of use of the property).
2. Standard fire policy (SFP) – hy cover direct loss akibat fire & lightning, dan setdknya satu
additional form berikut hrs attached utk dpt valid policy:
 Those that provide personal coverage (dwelling building & contents forms)
 Those that provide commercial coverages (general property, multiple location, &
reporting forms)
 Those that increase the covered perils, misal extended coverage utk vandalism, dll.
 Those that increase the covered loss, misal additional living expenses, rental value, dll.
Jenis” perlindungan yg dibuat oleh fire insurers pd polis terpisah, bukan sbg forms attached to the SFP,
disebut sbg allied lines.

Marine insurance
1. Ocean marine ins – proteksi thd financial loss krn kerusakan owned property akibat perils
terkait transportasi. Mengcover slrh tipe oceangoing vessels & kargonya.
2. Inland marine ins – utk trucking industry, modifikasi marine ins.

Liability insurance
Provide 2 levels of security for the PH:
1. Dlm kasus injury to a third party atau kerusakan property third party, dan PH dituduh
bersalah, insurer akan defend PH di pengadilan, tp bs stop defense tsb jk biaya atas kerusakan
sdh melebihi limit.
2. Further, jk PH terbukti bersalah, insurer bayar kerugian hingga limit.
Cth liability ins terjual terpisah: product liability ins, errors & omissions ins, medical malpractice ins,
professional liability ins, dll.
Coverage ini dicirikan oleh
 Low claim freq but high value claims yg umumnya direport bertahun” stlh occurrence dan
butuh bbrp tahun lg utk diselesaikan. Ini diatasi dg dibuatnya claims-made policy, yaitu claim
yg dicover hy claim yg tjd di periode polis, tdk peduli kapan penyebabnya tjd. Polis tsb dpt
dilengkapi tail coverage, yakni mengcover claims yg terjadi di periode tail atas penyebab yg
terjadi di periode polis.
 Potential for high litigation cost. Diatasi dg policy limit yg membatasi both defense cost &
indemnity payment.

Limits to coverage
1. Deductibles
(+) (-)
 Small loses do not create claim, jd  Insured kecewa krn losses not paid in full
menghemat expenses  Can lead to misunderstandings & bad
 Utk larger losses, avg claim payment is public relations
reduced by deductible which is  Marketing jd sulit
translated into premium savings  Insured bs inflate claim utk recover
 Deductible puts the PH at risk, shg deductible. Jd tdk adil bg honest PH who
memberi insentif bg PH yg mencegah will pay the resulting higher premium.
tjdnya klaim
 PH dpt mengoptimalkan utility uangnya
dg higher deductible (lower premium).
Dg kata lain, lbh bernilai utk mengurangi
premium drpd utk mengurangi
 deductible utk cover small loses yg tdk
terlalu bernilai.
Bbrp tipe deductible:
a. Fixed dollar apply to each claim.
b. Fixed percentage of loss atau policy limit that apply to each claim. Biasanya
dikombinasikan dg (a) spy insurer tdk perlu handle small claims.
c. Disappearing: loss <a dollar insurer pays nothing, >b pays full, a<loss<b insurer bayar
dg deductible berukurang scr pro rata atau linearly.
d. Franchise / cliff disappearing: loss <n insurer pays nothing, >n insurer pays full.
biasanya di ocean marine ins.
e. Fixed dollar deductible per calendar year (instead of per loss), biasanya di health ins
atau medical expense ins.
f. Elimination period: jeda waktu antara time of the disablement to the date that
disability benefits begin.
2. Policy limits
Reasons:
 To clarify the insurer’s obligation.
 Memberi upper bound distribusi kerugian bagi insurer.
 Allows the PH to choose appropriate coverage at an appropriate price.
Chapter 3: Ratemaking
Objectives
1. Essential
 Cover expected losses & expenses – income (premi & inv income) setdknya sebesar
pengeluaran.
 Produce rates that make adequate provision for contingencies – such as
unexpected losses (cth: 100-year flood, dll). Jk terlalu tinggi bs kalah saing. Jk terlalu
rendah, terpaksa nombok dr surplus, akibatnya mengurangi kesempatan utk expand
bisnis, jg mengurangi solvency insurer.
 Encourage loss control – desain proses klasifikasi risiko yg baik dpt memberikan
insentif ekonomi yg bsr bg PH yg berupaya mengurangi klaimnya. Cth: diskon utk good
driver di auto ins, diskon utk sprinkler system & burglar alarms in homeowner ins. Ada
nilai sosialnya jg dlm hal mengurangi kecelakaan.
 Satisfy rate regulators – scr umum persyaratannya adlh premi hrs cukup.
2. Non-essential but desirable
 Produce rates that are reasonably stable – efek bencana alam besar ke premi hrs
disebar spy tdk perlu tiba” menaikkan premi cukup besar. Reinsurance jg bs membantu
disini.
 Produce rates that are reasonably responsive to changes – bs beradaptasi dg
perubahan” yg memiliki immediate atau long-term consequences. somehow kontridiksi
dg poin sblmnya.
 Be simple & easy to understand – memudahkan agen & broker utk menjual produk.
Jk fitur produk rumit maka Ph akan sulit merelate antara loss control & lower rates,
encouraging loss control jd sulit.

Inputs
1. Claim freq dist. Avg claim freq:
# 𝑜𝑓 𝑖𝑛𝑐𝑢𝑟𝑟𝑒𝑑 𝑐𝑙𝑎𝑖𝑚𝑠
𝑓=
𝑢𝑛𝑖𝑡𝑠 𝑜𝑓 𝑒𝑎𝑟𝑛𝑒𝑑 𝑒𝑥𝑝𝑜𝑠𝑢𝑟𝑒
Perhatikan kemungkinan loss occur tp tdk menyebabkan claim (cth: loss<deductible).
2. Loss dist (severity). Avg loss severity:
𝑑𝑜𝑙𝑙𝑎𝑟𝑠 𝑜𝑓 𝑖𝑛𝑐𝑢𝑟𝑟𝑒𝑑 𝑙𝑜𝑠𝑠𝑒𝑠
𝑆= = 𝑎𝑣𝑔 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠 𝑝𝑒𝑟 𝑖𝑛𝑐𝑢𝑟𝑟𝑒𝑑 𝑐𝑙𝑎𝑖𝑚𝑠
# 𝑜𝑓 𝑖𝑛𝑐𝑢𝑟𝑟𝑒𝑑 𝑐𝑙𝑎𝑖𝑚𝑠
𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑐𝑢𝑟𝑟𝑒𝑑 𝑙𝑜𝑠𝑠𝑒𝑠 = 𝑙𝑜𝑠𝑠𝑒𝑠 𝑝𝑎𝑖𝑑 𝑡𝑜 𝑑𝑎𝑡𝑒 + 𝑢𝑛𝑝𝑎𝑖𝑑 𝑙𝑜𝑠𝑠 𝑟𝑠𝑣 𝑏𝑒𝑖𝑛𝑔 𝑐𝑎𝑟𝑟𝑖𝑒𝑑
3. Rate (𝑖) / force (𝛿) of interest
4. The times at which the payments are made. Loss cost per unit exposure/pure premium/net
premium:
𝑑𝑜𝑙𝑙𝑎𝑟𝑠 𝑜𝑓 𝑖𝑛𝑐𝑢𝑟𝑟𝑒𝑑 𝑙𝑜𝑠𝑠𝑒𝑠
𝑙𝑜𝑠𝑠 𝑐𝑜𝑠𝑡 = 𝑓 × 𝑆 =
𝑢𝑛𝑖𝑡 𝑜𝑓 𝑒𝑎𝑟𝑛𝑒𝑑 𝑒𝑥𝑝𝑜𝑠𝑢𝑟𝑒
Variance dr expected value umumnya berasal dr survival model & rate of interest (utk life ins &
pension plan) atau claim freq & loss dist (utk property/casualty ins).

Data
Accident Year (AY) Z Policy Year (PY) Z Calendar Year (CY) Z
Paid losses is the total Atas kejadian yg tjd di Atas kejadian dr polis” Yg dilakukan di CY Z
loss payment CY Z yg issued di CY Z
Data lengkap stlh Slrh loss di AY Z Maks 24 bulan, krn bs 1 tahun
dibayar. Di awal” ada polis yg issued di
sangat bergantung pd 31 Des Z
perhitungan rsv.
Written premium: cash accounting. Earned premium: amounts actually earned in the period (accrual
accounting).
𝑤𝑟𝑖𝑡𝑡𝑒𝑛 = 𝑒𝑎𝑟𝑛𝑒𝑑 + 𝑢𝑛𝑒𝑎𝑟𝑛𝑒𝑑

Premi dihitung sbg rate/unit dikali unit exposure. A good exposure unit base:
 Ukuran akurat atas quantitative exposure to loss
 Mudah ditentukan oleh insurer (pd waktu dihitungnya premi)
 Tdk dpt dimanipulasi insured
 Easy to record & administer
 Dipahami PH
 Scr automatis menyesuaikan dg biaya penyelesaian klaim.

Expected effective period: periode terjadinya loss yg mungkin tjd di bawah polis” yg diterbitkan dg
new rates.
Ada jeda antara experience period dg calculation date dg effective date (waktu start expected effective
period), shg bs mempengaruhi keakuratan perhitungan new rates.
AY PY CY
More common, bs pakai most Mempertimbangkan hub antara Jarang digunakan di
recent data & perhitungan loss- klaim & premi yg terkumpul. ratemaking
development factors. Data Tp data tdk lengkap hingga 31
claim umumnya dlm format AY, Des Z+1, jd antara hrs pakai
jd lbh ready estimasi atau data yg outdated

Ingredients of ratemaking
1. Loss development factors – menunjukkan pertumbuhan total paid loss dr waktu ke waktu.
Utk mengestimate complete loss data dari latest loss data (dlm format loss triangle, i.e. data
total paid loss). Incurred loss-development factor bs <1:
a. Perhitungan rsv yg konservatif (ultimate loss akan < rsv).
b. Adanya recovery dg & subrogation.
Distorsi dr large losses diatasi dg batas atas loss atau merata”kan large loss over a longer
period of time.
2. Trend factors – utk mengestimasi expected loss cost di masa mendatang, dg cara meng’adjust’
past experiences ke future levels. Ini utk mengcater cost changes akibat inflasi, benefit, dll.
Misal dg analisis regresi, baik linier maupun logaritmik:
𝑝𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑 𝑙𝑜𝑠𝑠 𝑐𝑜𝑠𝑡 = 𝑒𝑥𝑝𝑒𝑟𝑖𝑒𝑛𝑐𝑒 𝑙𝑜𝑠𝑠 𝑐𝑜𝑠𝑡 × 𝑒 𝛿𝑡
Dlm menginput 𝑡 perhatikan data. Jk pakai AY data maka avg accident date adlh 30 Jun Z, jk PY
maka 31 Des Z. Maka projectednya jg utk waktu avg tsb. Hrs adjust dg interpolasi utk dpt
estimate di titik waktu lain.
Dlm mengestimasi, perhatikan jg fator” luar lain:
 Recent court adjudication’s
 Interpretation of recent legislative changes
 Expected change in the rate of economic inflation
 Level of economic activity
 Recent changes in underwriting criteria or definitions
 Changes in mandated benefit levels
3. Expenses
a. Loss adjustment expenses (LAE): biaya terkait loss adjustment & payment process:
 Allocated loss adjustment expenses (ALAE): LAE yg dpt diasosiasikan dg suatu
claim, umumnya memiliki sifat” yg mirip dg losses shg serigkali dikombinasikan dg
losses utk ratemaking. Cth: lawyers’ fees.
 Unallocated loss adjustment expenses (ULAE): tdk dpt diasosiasikan dg suatu
claim. Dimasukkan ke incurred loss dg formula lain. Cth: gaji pegawai.
b. Expense yg mencakup komisi, premium taxes, licenses & fees, head office expenses.
Umumnya dinyatakan sbg % of gross rate.
 𝑒𝑥𝑝𝑒𝑛𝑠𝑒 𝑟𝑎𝑡𝑖𝑜 = 𝑎𝑙𝑙 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠 𝑜𝑡ℎ𝑒𝑟 𝑡ℎ𝑎𝑛 𝐿𝐴𝐸, 𝑎𝑠 % 𝑜𝑓 𝑔𝑟𝑜𝑠𝑠 𝑟𝑎𝑡𝑒
𝑝𝑒𝑟𝑚𝑖𝑠𝑠𝑖𝑏𝑙𝑒 𝑙𝑜𝑠𝑠 𝑟𝑎𝑡𝑖𝑜 = 1 − 𝑒𝑥𝑝𝑒𝑛𝑠𝑒 𝑟𝑎𝑡𝑖𝑜
𝑖𝑛𝑐𝑢𝑟𝑟𝑒𝑑 𝑙𝑜𝑠𝑠 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑜𝑓 𝑒𝑥𝑝𝑜𝑠𝑢𝑟𝑒 (𝑡𝑟𝑒𝑛𝑑𝑒𝑑 & 𝑑𝑒𝑣𝑒𝑙𝑜𝑝𝑒𝑑)
𝑔𝑟𝑜𝑠𝑠 𝑟𝑎𝑡𝑒 =
𝑝𝑒𝑟𝑚𝑖𝑠𝑠𝑖𝑏𝑙𝑒 𝑙𝑜𝑠𝑠 𝑟𝑎𝑡𝑖𝑜
Bbrp insurer memisahkan expense menjadi variable (V) yg bergantung pd gross rate & fixed
(F) per unit exposure
𝑖𝑛𝑐𝑢𝑟𝑟𝑒𝑑 𝑙𝑜𝑠𝑠 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑜𝑓 𝑒𝑥𝑝𝑜𝑠𝑢𝑟𝑒 (𝑡𝑟𝑒𝑛𝑑𝑒𝑑 & 𝑑𝑒𝑣𝑒𝑙𝑜𝑝𝑒𝑑) + 𝐹
𝑔𝑟𝑜𝑠𝑠 𝑟𝑎𝑡𝑒 =
1−𝑉
4. Loading for profit & contingencies
 Implicit approach: menggunakan conservative input parameters & methodologies dlm
perhitungan premi. Harapannya agar actual lbh baik dr expected shg dihslkan profit.
 Explicit approach: menghitung premi dg basis best estimate (tanpa level of
conservatism), lalu menambahkan explicit factor (umumnya % of gross rate) utk profit
& contingencies. Lbh popular digunakan.
5. Credibility factors Z – alat utk compromise between responsiveness & stability when working
with sparse data. Merupakan fungsi dr ketidakpastian terkait underlying freq & severity dist.
Properties:
 0 ≤ 𝑍 ≤ 1. Fully credible 𝑍 = 1.
𝑑𝑍
 𝑑𝐸 > 0, yakni volume of experience data ↑ maka credibility ↑.
𝑑 𝑍
 ( )
𝑑𝐸 𝐸
< 0, yakni size of the risk ↑ maka % change in credibility ↓.
2 formula credibility yg umum:
𝐸
𝑍= ,𝑘 > 0
𝐸+𝐾
𝑛
𝑍 = min (√ , 1)
𝑘
Dg E ukuran exposure (cth: premium income), K konstanta utk mencerminkan variability of
business, n ukuran exposure (cth: # claims), k # claims yg dibutuhkan utk full credibility.
6. Investment income – hrs memperhitungkan time value of money. Misal premi utk $1mn
liability loss hrs lbh kecil jauh drpd utk $1mn fire loss, krn the former takes several years to
settle.

Rate changes steps:

1. Overall avg rate change
2. Changing risk classification differentials
3. Balancing back