Insurance Scenarios

Three scenarios = three views of ‘up-to-date’:

The insurer who is not yet exposed to a liability would want to know what the prospects were and what his competitors might be planning for. He would not especially want to acquire an exposure for which there was no claims experience to work with. He might want to know as soon as a reasoned challenge to orthodoxy can be made.

The insurer who is heavily exposed, needs to know if there will be inflation. Of course he will monitor claims trends. Continuously changing his view of the uncertainty in the light of research publications would be a nuisance so he might wait until there is new case law or until the authorities begin to review their understanding or wait until a research report seems to imply a really big change. This depends on how the degree of uncertainty stacks up against his risk tolerance and risk appetite.

The insurer who is only slightly exposed may wait until there is a claims trend and then search the Radar database to try and understand where this came from and how big it might become. Similarly, the insurer who is exposed mostly as IBNR will not get much of a signal from claims trends and will need to evaluate good information as and when he gets it.

But all three situations can be managed in a consistent way if probabilistic methods are used.

Three scenarios = three views of ‘up-to-date’:

The insurer who is not yet exposed to a liability would want to know what the prospects were and what his competitors might be planning for. He would not especially want to acquire an exposure for which there was no claims experience to work with. He might want to know as soon as a reasoned challenge to orthodoxy can be made.

The insurer who is heavily exposed, needs to know if there will be inflation. Of course he will monitor claims trends. Continuously changing his view of the uncertainty in the light of research publications would be a nuisance so he might wait until there is new case law or until the authorities begin to review their understanding or wait until a research report seems to imply a really big change. This depends on how the degree of uncertainty stacks up against his risk tolerance and risk appetite.

The insurer who is only slightly exposed may wait until there is a claims trend and then search the Radar database to try and understand where this came from and how big it might become. Similarly, the insurer who is exposed mostly as IBNR will not get much of a signal from claims trends and will need to evaluate good information as and when he gets it.

But all three situations can be managed in a consistent way if probabilistic methods are used.