An Exposure Based Approach to Automobile Warranty Ratemaking and Reserving

Traditional techniques for analyzing vehicle service contracts rely on loss development techniques. This session will explain why loss development is, in general, a poor method for projection. An alternative method is developed using the attributes for a particular contract. GLM or minimum bias techniques are applied to develop an individual estimated cost-per-mile for each contract using a wide variety of contract level data. The mileage patterns for the book and any underlying warranties are also directly considered.