M oral hazard, a long-time concern in the insurance industry, is increasingly being recognized as a concern in the regulation of banking and other financial industries. A classic example of its possible perverse effects is the selling of a fire insurance contract to a group of uninsured individuals. If the premiums are based on the actuarial data of this group’s loss experiences, then the contr...

Risk classification involves concepts similar to those in ratemaking (Chapter 3) and individual risk rating (Chapter 4). Actuaries use risk classification primarily in ratemaking when there is not sufficient information to estimate a price for a given individual. In order to derive a price, individuals who are expected to have the same costs are grouped together. The actuary then calculates a p...

Traditional actuarial pricing procedures have focused on pre-accident driver attributes, vehicle characteristics, and garaging location in an effort to explain personal automobile loss cost “drivers.” Although these traditional factors are important for statewide ratemaking in a static environment, they account for only part of the influences on auto insurance loss costs. This paper draws on th...

It is no longer uncommon these days to find the need in actuarial practice to model claim counts from multiple types of coverage, such as the ratemaking process for bundled insurance contracts. Since di↵erent types of claims are conceivably correlated with each other, the multivariate count regression models that emphasize the dependency among claim types are more helpful for inference and pred...

This paper uses a fire protection measure based on a community’s tire insurance rating to estimate the strength of congestion effects for fire protectron services. The empirical results show that the congestion properties of fire protection are much like those of a pure public good. In addition, the paper introduces a new notion of returns to scale for public goods and estimates the relevant pa...