Pricing in General Insurance

519

29

Insurance Structure Optimisation

In Chapter 4, we looked at heuristic rules on how to choose the deductibles and limits of poli-

cies. These rules may suggest, for example, that the annual aggregate deductible (AAD) for

a commercial liability policy should be hit with a probability of 5% to 20%, or that an each-

and-every-loss deductible should lter out at least 90% of the claims. However, these heuristic

rules are exactly what the name says – heuristics – and there is no rigorous justication for

them, only common sense reasoning. It is no surprise that these rules are often and cheerfully

outed.

Is it possible to improve on this and hav ...