The Analytically Based – Data Driven Broker: Loss Cost Analysis

Timothy L. Coomer, Ph.D.

RISK66-video-announcement

Blog 1: Intro to SIGMA & Scope and Data Requirements
Blog 2: Loss Development Factors
Blog 3: Reserve and Cash Flow Analyses
Blog 4: Trending, Pure Loss Rates, and Loss Projections
Blog 5: Confidence Interval and Retention Level Analyses
Blog 6: Loss Cost Analysis

Our prior blog post dealt with confidence intervals and retention level analyses, both of which rely heavily on loss projections. To produce these analyses, an actuary must examine historical, contextualized losses from a credible database, but what happens when organizations or divisions with workers compensation policies either don’t have access to that data, or have very limited claim frequency?

In those cases, an actuary will offer what is known as a loss cost analysis, which combines industrial information with an organization’s exposure to risk to arrive at a credible loss projection.

Exposures, which we touched on in an earlier post, are amounts that indicate vulnerability to risk in a given industry. Typically, these range from sales figures to vehicle amounts to payroll, but due to the nature of the loss cost analysis, payroll amounts are required. Specifically, payroll amounts must be segmented by class code and accompanied by a few extra inputs (such as the state each segment is based in), which allows the actuary to further contextualize the risk they present based on industry data. Based on this context, a credible pure loss rate is applied to each segment to create a number of individual loss projections, and then each segment’s loss projection is summed to create a total projection for the entity.

One of the aforementioned inputs needed to determine a pure loss rate is the policy period’s retention level, meaning SIGMA can also provide retention level analyses without utilizing loss data, which is especially useful for newly created organizations, recent acquisitions, or brand new divisions.

Since the loss cost analysis requires non-typical input data, it can be difficult to ensure that the data provided is fully representative of an organization. In situations where this is a possibility, SIGMA is always available to discuss precisely what is needed and provide advice on the best methods of gathering it.

If loss cost analyses are of special interest to you now, or may be in the future, we’d like to provide some documentation describing it in greater detail. Below, links to relevant RISK66 documents and videos are available at your convenience.
PDF Resources

  • Exposures Snapshot - A brief summary about exposure data and how actuaries use this to measure type and scope of risk.

Video Resources

  • Exposures - This 10 minute about exposures explain how actuaries use them to determine an organization's vulnerability for risk.

We very much appreciate you taking the time to join us in examining SIGMA’s many offerings. As SIGMA continues to grow, so too does our sphere of expertise. Thus, we’d like to take just a little time to discuss forthcoming ways in which SIGMA can help you.

As you may have noticed through our previous blog posts, there are currently a number of educational resources available from RISK66, ranging from graphics to manuals to walkthrough videos. We are continuously expanding these libraries, and will soon be including an option to further assist in the educational process via onsite training. We’re very excited to be offering this new range of material and would love to know if and how it would benefit you. At your convenience, feel free to schedule a time to talk with a representative from SIGMA who would be happy to go through your specific needs and see how our resources, existing or forthcoming, can help.

Leave a Reply

Your email address will not be published. Required fields are marked *

Archives

Recent Posts

A Practical Guide to Navigating Fairness in Insurance Pricing
Rich Moncher recently co-authored a research paper with Jessica Leong and Kate Jordan, and it was published by the Casualty Actuarial Society. Each paper in this research series addresses a different aspect of race and insurance pricing as viewed through the lens of property and casualty insurance, ...
Read More
When Captives Require Multiple Actuaries: Key Considerations
In a recent article published by Captive International, Jason Luckett and Ben Brandon of Risk Strategies Consulting look at what happens when a captive sees the need to employ another actuary. Captive insurance companies can be a great tool, as they are uniquely capable of meeting the specific insu...
Read More
Navigating the Impact of Claims-made and Occurrence Policies on Loss Development
When analyzing insurance-related data, actuaries must always be cognizant of the nuances within the underlying policies, particularly when it comes to their impact on Loss Development Factors (LDFs). The complexities they present may grow more pronounced when the policy type changes over time or has...
Read More
Assessing Financial Strategies for Cyber Risk
The assessment tools available in RISK66 are an integral part of our platform, and we would like to thank those who have shared positive feedback over the years regarding their usefulness. Because of our desire to continue providing exceptional support to our RISK66 users, SIGMA is excited to a...
Read More

Subscribe to Our Blog



hello world!
Copyright © 2023 – 2024 SIGMA Actuarial Consulting Group, Inc. All Rights Reserved.
chevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram