Coverage provided by a new vehicle extended warranty begins where the manufacturer's factory warranty ends. New vehicle extended warranty coverage is triggered and limited by both time and mileage. Since factory coverage is constantly being enhanced, extended warranty coverage rarely remains the same long enough for comparable statistics to develop.
Our model segregates historical claims into several major types e.g., power train, non-power train, rental car and towing. The pure premium for each claim type is defined as the component pure premium.
The model utilizes claim data by type to determine the monthly component pure premiums at each stage of the warranty's life.
Exposure of an extended warranty is measured by the number of months or miles exposed to a particular claim type. By matching the proper component pure premiums with their corresponding exposure units, we can build the total pure premium of the proposed extended warranty.
Keywords: Exposure Bases, Warranty
