Update on the aging phenomenon steve d arcy sholom feldblum alma cohen
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Update on the Aging Phenomenon Steve D’Arcy Sholom Feldblum Alma Cohen. CAS Fall Meeting November 12, 2002 Boston, Massachusetts. Definition.

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Update on the aging phenomenon steve d arcy sholom feldblum alma cohen

Update on the Aging PhenomenonSteve D’ArcySholom FeldblumAlma Cohen

CAS Fall Meeting

November 12, 2002

Boston, Massachusetts


Definition
Definition

A cohort of property-liability insurance policies, all written as new business at the same time, experiences a gradually improving loss ratio as the policies undergo successive renewal cycles with an insurer.

This contrasts with the select-ultimate experience pattern of life insurance.


Primary empirical research
Primary Empirical Research

  • Dahlby 1983 Adverse Selection and Statistical Discrimination Journal of Public Economics

  • D’Arcy and Doherty 1990 The Aging Phenomenon and Insurance Prices PCAS

  • D’Arcy and Doherty 1990 Adverse Selection, Private Information and Lowballing in Insurance Markets Journal of Business

  • Feldblum 1996 Personal Automobile Premiums: An Asset Share Pricing Approach for Property/Casualty Insurance PCAS

  • Cohen 2001 Asymmetric Information and Learning in the Automobile Insurance Market (Working Paper)


Explanations for the aging phenomenon
Explanations for the Aging Phenomenon

  • Accumulation of private information

  • Business more accurately classified

  • Underwriting – high risk policies cancelled

    • However, aging occurs where renewal underwriting is restricted

  • High maintenance policyholders become dissatisfied with service and leave


New developments
New Developments

  • Extensive dataset of company experience

    • Alma Cohen’s research

  • CLUE (Comprehensive Loss Underwriting Exchange)

    • Appears to lower initial loss ratios and reduce level of improvement

  • Aging Phenomenon in DFA models

    • Allows study of optimal growth rates