The Minimum Absolute Deviation Trend Line [Discussion]

Most ratemaking procedures may be described as simply the processes through which loss experience at least one year old is projected to estimate the loss experience of the same risks one or two years in the future. This time lag is the inevitable result of the constraint that the rates be reviewed on the basis of the total loss experience of the line. Even with high speed computers, it is physically impossible to record, gather, sort, and caress the enormous amounts of data involved in any reasonable length of time. It follows from this built-in lag that recognition must be given to the possible differences in claim cost levels between the two periods if we are to achieve adequate rates.