An Approximation for the Testing of Private Passenger Liability Territorial Rate Levels Using Statewide Distribution of Classification Data [Discussion]

As a representative of a ratemaking organization, I found Mr. Gill's paper of particular interest. The essential idea of the paper concerns the calculation of premium at present rates by utilizing a statewide distribution of classification exposures instead of the actual distribution within each rating territory. The standard method of computing premium at present rates, as described in Mr. Stern's paper, requires the use of the actual class exposures within each rating territory. Except for the six states, the National Association of Independent Insurers collects automobile experience by territory for all classes combined and only statewide for each classification. Thus, the NAII's compilation of experience does not include the actual classification exposures within each rating territory. Mr. Gill believes an estimate of the exposure by class within each territory, based upon the statewide distribution, would enable small independent companies to use the NAII's compilation of experience to 1) test their rate levels or 2) determine approximate rate levels for a state they are entering for the first time.