Umbrella

Professional Actuarial Topics Property/Casualty
1

I have some questions about Umbrella, specifically Commercial:

  1. When calculating underlying auto or GL, does underlying premium include experience or schedule rating?
  2. Is the underlying premium manual or modified premium?
  3. Possible more to follow.
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2

I assume that you’re more interested in “large account” underwriting and rating rather than “small business” insurance.

  1. Why wouldn’t it? It’s my understanding that for many large accounts, the entire coverage–including Umbrella coverages–is often done together. That is, the rating takes everything into consideration; including any rating modifications.

  2. Manual premium will generally be applied to smaller risks where its experience isn’t exactly credible.

  3. :popcorn:

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Frummie, you stated that you have questions about umbrella, and then you asked two questions about the underlying, primary policy and no question about umbrella.

  1. The underlying policy may certainly include experience and/or schedule rating. But it makes sense that a primary GL policy for the 300 square foot shop called Bob’s House of Pokemon Cards is going to have a different approach than a GL policy for a major corporation such as Exxon, right? And then there’s everything in between.

  2. I think what you are asking is if the UMB prem charge is based off of the manual U/L or the modified U/L. That could vary from company to company or client to client, depending on the size and complexity of the policy holder. But I think the common approach is that the UMB is a functional ILF charge as a percent of the charged U/L prem.

  1. :meep:
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4

:rofl:

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5

Thanks all. I am looking at commercial risks. Could be 20 or more autos.

6

My experience with commercial umbrella / excess liability is in a specialty / E&S environment.

The manuals I wrote / the raters I built, when rating as a function of underlying, used the underlying premium net of credits, debits, experience mods, etc. when writing above our primary liability policies.

For unsupported umbrella/excess, for various products, I’d either do that (but introducing a modification to the underlying premium for known expense differences), or I’d ask the underwriters to do a streamlined pricing of the primary layer and use that instead of G-d-knows-whatever the primary carrier was smoking.

For large accounts / when the “large account exception” in the manual was invoked, rating was done on the entire tower of coverage (primary + excess/umbrella), using essentially an ILF curve to divide between primary and umbrella/exccess, and to account for deductibles / SIRs.

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