Expense Analysis in Ratemaking and Pricing, [Discussion]

Upon first reading Mr. Wade’s paper, “Expense Analysis in Ratemaking and Pricing,” 1 was not overly impressed with its content. I felt the paper to be mainly of referential value. The “constant percentage loading” and “use of expense constant” approaches to ratemaking are not unfamiliar to the actuary. Discussion concerning the “full absorption basis” and the “contribution method” seems to be an oversimplified polarization of the expense allocation problem. Though informative, the paper really did not offer anything new or beyond the awareness of the practicing actuary. In fact, in discussing the contribution method, Mr. Wade poses a situation of potentially damaging consequences-at least, to certain segments of the insurance industry.