Insurance Data Aggregation Methods and External Insurance Data: Practice Questions and Solutions

This section of the study guide is intended to provide practice problems and solutions to accompany the pages of Basic Ratemaking, cited below. Students are encouraged to read these pages before attempting the problems.

Some of the questions here ask for short written answers based on the reading. This is meant to give the student practice in answering questions of the format that will appear on Exam 5. Students are encouraged to type their own answers first and then to compare these answers with the solutions given here. Please note that the solutions provided here are not necessarily the only possible ones.

Source:
Werner, Geoff and Claudine Modlin. Basic Ratemaking. Casualty Actuarial Society. 2009. Chapter 3, pp. 43-46.

Original Problems and Solutions from The Actuary's Free Study Guide

Problem S5-15-1. Which of the following statements about policy year aggregation are true? More than one answer may be correct.

(a) Policy year aggregation is the same as calendar-accident year aggregation.
(b) Policy year aggregation is the same as underwriting year aggregation.
(c) Policy year aggregation considers the dates when claims occurred.
(d) Policy year aggregation considers the premiums and losses on all policies written during a 12-month period, irrespective of when claims were reported or paid.
(e) Only when all policies written during a 12-month period expire can fixed premium and loss data be obtained under the policy year aggregation method.
(f) For the policy year aggregation method,

Reported Losses = Paid Losses + Case Reserves, all of which apply to losses that occurred during the year.
(g) Policy year aggregation provides the best match between premiums and losses.

(h) When the policy year aggregation method is used, it takes longer for data to develop than when the calendar year aggregation method or accident year aggregation method are used.

Solution S5-15-1. This question is based on the discussion in Werner and Modlin (43-44). The following answers are correct:

(b) Policy year aggregation is the same as underwriting year aggregation.

(d) Policy year aggregation considers the premiums and losses on all policies written during a 12-month period, irrespective of when claims were reported or paid.

(e) Only when all policies written during a 12-month period expire can fixed premium and loss data be obtained under the policy year aggregation method.

(g) Policy year aggregation provides the best match between premiums and losses.

(h) When the policy year aggregation method is used, it takes longer for data to develop than when the calendar year aggregation method or accident year aggregation method are used

Answer (a) is incorrect, because accident year or calendar-accident year aggregation is different from policy year aggregation.

Answer (c) is incorrect, because policy year aggregation only considers whether a loss occurs on a policy written during a certain time period, not when a claim occurs on that policy.

Answer (f) is incorrect, because for the policy year aggregation method,

Reported Losses = Paid Losses + Case Reserves, all of which apply only to policies written in a certain 12-month period.

Problem S5-15-2. Which of the following statements about report year aggregation are true? More than one answer may be correct.

(a) Report year aggregation considers the dates when claims occurred.
(b) Report year aggregation considers the dates when losses were paid.
(c) Report year aggregation considers the dates when claims were reported.
(d) Report year aggregation is often used in claims-made policies for commercial lines of insurance.
(e) Report year aggregation is often used in personal lines of insurance, especially for private passenger automobile policies.

Solution S5-15-2. This question is based on the discussion in Werner and Modlin (44). The following answers are correct:

(c) Report year aggregation considers the dates when claims were reported.
(d) Report year aggregation is often used in claims-made policies for commercial lines of insurance.

The report year method is typically not used in personal lines of insurance, so (e) is incorrect. (a) and (b) are incorrect, because the report year method only considers when claims were reported - not when they occurred or when losses were paid.

Problem S5-15-3. Match the following (numbered) methods to the following (lettered) practices.

(1) Overall ratemaking analysis;

(2) Univariate classification analysis;

(3) Multivariate classification analysis.

(a) Data ought to be organized at the individual policy or risk level.
(b) Data can be aggregated and summarized using the chosen type of year (e.g. calendar year, policy year, etc.) for the overall product and location being analyzed.

(c) Data should be aggregated at the level of each variable being analyzed.

Solution S5-15-3. This question is based on the discussion in Werner and Modlin (44).

Data ought to be organized at the individual policy or risk level in multivariate classification analysis.

Data can be aggregated and summarized using the chosen type of year (e.g. calendar year, policy year, etc.) for the overall product and location being analyzed in overall ratemaking analysis.

Data should be aggregated at the level of each variable being analyzed in univariate classification analysis.

Thus, we have the following matches:
(1) and (c); (2) and (b); (3) and (a).

Problem S5-15-4. Which of the following are true about statistical plan data? More than one answer may be correct.

(a) Statistical plan data collected by state regulators are often highly summarized.
(b) Statistical plan data always only apply within the boundaries of a particular state.
(c) The Insurance Services Office (ISO) and the National Council on Compensation Insurance (NCCI) are two examples of organizations that collect and analyze statistical plan data.
(d) Statistical plan data collected by ISO and NCCI are often highly summarized.
(e) Statistical plan data are almost always confidential and only accessible to the entities that collect them.

Solution S5-15-4. This question is based on the discussion in Werner and Modlin (45).

The following answers are correct:
(a) Statistical plan data collected by state regulators are often highly summarized.

(c) The Insurance Services Office (ISO) and the National Council on Compensation Insurance (NCCI) are two examples of organizations that collect and analyze statistical plan data.

Answer (b) is incorrect; statistical plan data can apply to multiple states.

Answer (d) is incorrect; ISO and NCCI often collect highly detailed data at the level of individual transactions.

Answer (e) is incorrect; statistical plan data are often publicly available information and can be used by insurers in ratemaking analyses.

Problem S5-15-5. Name five organizations or systems that serve as sources of other aggregated industry data, as discussed in Werner and Modlin (45-46).

Solution S5-15-5. The five sources of other aggregated industry data are as follows:
1. The "Fast Track Monitoring System";

2. The Highway Loss Data Institute (HLDI);

3. The Insurance Research Council (IRC);

4. The Institute for Business and Home Safety (IBHS);

5. The National Insurance Crime Bureau (NICB).

See other sections of The Actuary's Free Study Guide for Exam 5.