The Rate-Making Process in Property and Casualty Insurance. Goals, Technics, and Limits

Abstract

The general tide of this symposium is Regulation of Insurance, but it is no accident that most of the papers deal with one aspect or another of insurance rates and their regulation. So central indeed is the rate to the concept of insurance or riskpooling that an adequate treatment of insurance regulation cannot avoid it. It is the special purpose of this paper to present an analysis of the objectives of the actuary or rate-maker; of the technics he devises; and of the handicaps, technical, social and other, he must surmount or ignore to achieve these objectives. We seem constantly to forget it, but it is no more fair to judge the rate-maker's product without reference to his goals than that of any other craftsman or professional, and unless his limits as well as his objectives are kept plainly in the foreground he will often be criticized for failing to do the impossible, or even the unnecessary and undesirable. It is not possible nor desirable to carry this emphasis on technical, vis-a-vis legal principles beyond a certain point, but as far as is practicable the approach in this paper will be in terms of the former. Insurance is a technic or a principle before it is a business, and it is a business before it is a legal institution. The present paper will center on the principles on which both business and institution rest and without which neither would be possible.