Understanding Expense Categories

tubaguy8tubaguy8
in GENERAL

I've gotten tripped up on some problems by mis-identifying how to use certain expenses in the final premium. Most expenses are easy to identify, but there have been times where (I think) certain expenses only apply to certain types of policies (e.g., LDD, Retro, Excess WC).

One example I can think of is credit charge - I believe this should be included in the LDD policies but not Excess WC policies since the insurer has no credit risk.

Can you provide other examples of "expense gotchas" we can prepare for that don't apply to most of the policies we're pricing on this exam?

Thanks!

Comments

  • adminadmin

    Here's the general philosophy I use with this type of pricing:

    1. Who pays what? For example, does the insurer pay everything and then seek recovery? If there's the potential to recover then we have credit risk.
    2. Who is doing the servicing? For example, with an excess policy the insurer only pays out on excess claims. So there's no loss based assessments and LAE is only on excess claims.
    3. What is taxable? This can be tricky as the text isn't always clear. In general, retrospective premiums are taxable but deductible reimbursement payments aren't.

    What are some other situations people have come across?

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