Potential volatility, combined with a price sensitive environment, demands the use of sophisticated techniques.
Compensation for personal injury arising from a motor accident is provided by way of the various CTP insurance schemes operating in Australia. Each scheme varies in the way in which the compensation is managed (private sector versus public) and the types of compensation provided (Common Law lump sum benefits versus No Fault regular payment benefits).
CTP insurance has certain features which distinguish it from other forms of insurance and which impact on the pricing and general financial operations of the organisation providing the insurance. These are:
Greater variability (risk) associated with providing CTP insurance than with most other types of insurance
Its compulsory nature gives rise to an associated political sensitivity in the pricing of the product.
Potential volatility, combined with a price sensitive environment, demands the use of sophisticated techniques such as generalised linear modelling, to base decisions on the underlying drivers of risk and to enable early detection of deteriorating profitability.
It is important that expectations for benchmarking are established, and experience against these benchmarks monitored closely. Variability in outcomes can be modelled to assist in determining appropriate capital levels and profit margins for the business.
In competitive environments, price elasticity is an important determinant of underlying profitability and needs to be examined in conjunction with rating factors and bonus-malus structure to determine the optimum rating structure.
Key specialist: Chris Latham
Relevant experience:
General insurance specialist
Has been advising on all actuarial aspects of accident compensation risks since the early 1980s
Advisor to governments on changes to schemes in response to adverse experience
Particular expertise in the management over time of premiums and solvency in monopoly schemes.
