LER, ALAE and Deductibles

emelndemelnd
in Bahnemann.Chapter6

If ALAE is not subject to deductibles why do we have Epsilon * F_x(d) in the numerator of LER? Shouldn't what's eliminated only have an indemnity part?

Comments

  • emelndemelnd

    Are we assuming the claims below the deductible limit will also defend themselves etc and not file a claim at all?

  • adminadmin

    Yes, the general assumption is if the claim is below the deductible then it's not reported to the insurer so the insurer won't incur any of the ALAE expenses that would otherwise have been associated with the claim. In practice, for some lines of business, this isn't usually the case.

  • emelndemelnd

    Thanks!

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