A Mathematical Approach to Fire Classification Rates

The actuarial core of the fire protection classification rate relativity problem is the actuarial core of any fire rating problem: The fire rate structure must be (or, at least, for generations, by custom and usage, has been) refined far beyond the refinement of the fire statistical plan. Entirely apart from the detail of recently-publicized shortcomings of the current most widespread fire statistical plan, the National Board of Fire Underwriters Standard Classification of Occupancy Hazards, 1 further refinement of the statistical plan is no answer of itself because, very simply, of credibility considerations. A fact well known to any experienced fire ratemaker has been formalized by Dr. Almer in the statement: "Statistical experience proves that most claims in any branch [of nonlife insurance] will be concentrated in some few statistical risk groups (or tariff partitions), leaving most tariff groups without effective statistics, even if a five-year experience is utilized."