You have to make an assumption about the ratio of the insurance limit
purchased
to the total value of the property *when you set the rates.* You set rates
in advance,
file them with regulatory authorities etc. months before you've even met
the customer
who's going to buy the $100,000 policy.
>Ref. Head, p. 78
>Says, ?Practically, statistics on the before-loss value of damaged
properties
>are not sufficient to permit the data to be stratified to obtain
percentage loss
>severity figures for properties in different size classes.? I don?t get
it ?
>why wouldn?t the value of the property and the loss amount be sufficient
to
>derive and percentage of loss distribution you could want?
I think you're misinterpreting Head. He's not saying "In principle, even
perfect
statistics on before-loss values wouldn't be sufficient if you had them."
He's saying that insurers, in acutal practice, tend not to have sufficient
statistics on before-loss values to perform this calculation (because the
insurer
may not have had enough properties in each size class for a credible
result,
because data on the actual property values may not have been kept, although
data on loss payments presumably were, etc.)
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