Let’s say, hypothetically, you are working at a commercial insurance company which has been abandoned by competent actuarial staff for some ten years. During this time, the only impact to policyholder rates were at an underwriter’s discretion - giving credits and debits (of course only where justified), as well as flat 5% increases to LCMs each year. Also during this time, this company’s competitors have been refining their rating algorithms and skimming the cream that is your low risk ex-policyholders.
This company hires you to create an indication. How do you on-level this premium? Filed rates have increased, but not at an actuarially justifiable pace. Underwriting credits and debits have been applied haphazardly, and are quantifiable only on persisting business. Anti-selection has run amok, causing high risk groups to stay while overpriced better business has gone elsewhere. The rate increases you have achieved are invariably correlated to the survivorship bias that is your current portfolio of sticky risks.
At this point, would it make sense to only use historical data given that those historical policies are still in force? Is there another way to adjust for a rapidly changing cohort of business that optimistically will return to its profitable ways of ten years ago?