Pricing in General Insurance

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9

Setting the Claims Ination Assumptions

Experience rating – the type of pricing based on the analysis of past loss experience and

which will be the basis of much of this book – is loosely based on the idea that the past is

a good guide to the future and that you can therefore use past losses to estimate future

losses. This is what we have done, in a very simple way, in the elementary pricing example

of Chapter 1.

Even the staunchest supporter of experience rating, however, knows that loss experience

will not simply repeat itself identically and that experience must be made relevant to current

conditions. One thing that one must denitely do ...