Flashcards in Skurnick - Table L Deck (5):
According to Skurnick's "The California Table L", describe the problem that Table L was created to solve.
The overlap between the following charges was eliminated in Table L, which has the advantage of reflecting both the:
1. Charge for limitation of total losses and
2. Charge for limitation of individual accidents
Table M only reflects the charge for limitation of total losses.
According Gillam in his review of Skurnick, how does the NCCI's retrospective rating plan manual for WC and EL solve the problem in part a.
The NCCI plan uses a formula shift in table M columns to approximate a limited loss table M.
Since the selection of a loss limit reduces the skewness of claim size distribution, and hence the loss ratio distribution, this process can be modeled by a shift in columns in table M to one applicable for a larger size risk(ie more stable loss distribution).
To determine ELG, E is adjusted as follows:
ELG = E * (1+0.8F/E)/[1-F/E] and F/E = LER
List one advantage and one disadvantage of Table L approach
Advantage: from a mathematical point of view, table L represents an advance over Table M.
- Every important table M formula has a table L generalization
- Table M is a special case of Table L
since the charge for a pre-determined accident limit is build into the table, it cannot be used for alternate accident limits
One advantage and one disadvantage of Table M approach
Advantage: the column shift procedure provides means to account for the effects of inflation. (NCCI tables are update regularly due to inflation)
Disadvantage: the column shift procedure is only an approximation.