Homeowners Insurance Ratemaking [Author's Review of Discussion]

There is no disagreement with the reviewers’ observation that the loss ratio method can yield the exact same answer as the pure premium method, given the same degree of statistical detail available under both. However, one of the principal advantages of the loss ratio method, namely, its simplicity of application. can he a potential drawback. In applying the loss ratio method, there is a temptation to use the most summarized form of the data, without checking for distributional differences and rating inequities in the various classification subsets. Also, maintaining on-level factors by class and territory can sometimes be unwieldy. especially if there have been many changes.