General Liability Ratemaking: An Update

In the fourteen years since Jeffrey T. Lange wrote "General Liability Insurance Ratemaking" the insurance industry has experience a period of significant social and economic inflation. This has been evidenced by spiraling insurance claim costs, as well as by rapidly growing number of claims, brought by an increasingly claims conscious public. The impact on the various General Liability lines of insurance has been a dramatic change in industry profitability, which in turn has presented sever challenges to the ratemaker. Considering the turbulence of this fourteen year period, the adjustments that have been made to the actuarial methodology described by Lange have not been major, but they have served to improve the accuracy of the overall rate level calculation. The purpose of this paper is to present a summary of the adjustments that have been made in the basic limits ratemaking methodology and the reasons for their introduction. Recent revisions in increased limits ratemaking methodology are beyond the scope of this paper but are fully described in Robert S. Miccolis's paper "On the Theory of Increased Limits and Excess of Loss Pricing." LOB-Medical Malpractice