Implications of Sampling Theory for Packages Policy Ratemaking

Following the introduction of the Homeowners’ policy, interest began to develop in the problem of making rates for package policies. This interest was heightened by the introduction of the commercial package policies, which departed from the indivisible premium concept of the Homeowners’ policy. These policies raised a question for ratemakers: should the experience data be collected so that a single rate might replace the separate rates for each coverage? Before answering this question, it was necessary to face the more basic question of how the experience developed for several different coverages might be combined for ratemaking. While actuaries were pondering these questions, still another problem arose. The experience data for the residual fire dwelling business-those risks not insured under the package policy-were found to be extremely adverse. Thus the ratemakers were forced to expand the package policy ratemaking problem to include ratemaking for residual business.