GI technical pricing

While current market conditions and possibly portfolio optimisation ultimately decide on the prices charged to customers, it is crucial to carry out an analysis of the portfolio to estimate the technical rates - the prices that should be charged to cover costs and expenses and deliver an appropriate profit margin.

There are two main components to this type of analysis:

• The determination of relativities of various factors (e.g. geographical location, house type, wall type for domestic home lines, age and gender, vehicle type for motor lines);
• The calculation of gross premium rates.

The first process is typically carried out using generalised linear models for claim size and claim frequency. Indeed, Greg Taylor led Australian thinking in this area through the publication of his Technical aspects of domestic lines pricing paper.