The Credibility of the Pure Premium [Discussion]

One of the purposes of constructing a model or theoretical abstract of an actual situation is to be able to see it more clearly. Many ratemakers have recognized practical deficiencies in credibility tables. Rates for low volume lines of insurance (and for low volume territories of major lines) are sometimes increased one year only to be reduced in the next year. They have also noted that the formal credibility standards are insensitive to the line of insurance, in that the same credibility factors are assigned in spite of differences in the distribution of number of claims and claim amounts. In their theoretical paper, Messrs. Mayerson, Jones, and Bowers have provided the ratemakers with a clear picture of the weaknesses of existing procedures and a practical tool for recomputing credibility standards.