The Responsiveness of Automobile Trend Factors [Review]

Mr. Kaliksi's paper is a well-written, easy-to-read paper that points out the danger of following "standard" trend techniques. In a period of changing inflation rates, the actuary who locks himself into a projection based on fitting a curve to the latest twelve points of year ending quarterly data is doomed to miss the mark. As Mr. Kaliski points out, in times of increasing rates of change (for example Mr. Kaliski's progressive annual changes of 4.8%, 6.8%, 9.0% and 13.4%), the average claim cost trend will be understated. Conversely in times of decreasing rates of change (for example progressive annual changes of 13.4%, 9.0%, 6.8% and 4.8%), the trend factors will be overstated. Neither of these conditions is desirable. Undershooting the trend results in poor underwriting results, while overshooting results in loss of market share as insureds choose lower priced policies that were based on the correct trend.