Automobile Physical Damage Ratemaking

The Automobile Physical Damage line of insurance embraces the more commonly known coverages of Automobile Fire, Automobile Fire and Theft, Automobile Comprehensive, (which encompasses Fire and Theft plus additional coverages) and Automobile Collision. The manual rates for these coverages are made for a great majority of insurance companies by the National Automobile Underwriters Association. The present ratemaking procedure of the NAUA was established in 1952. Prior to its adoption, automobile physical damage rates had been developed under a so-called “50/50 formula” wherein all expenses (except allocated claim expense which was handled as an element of loss) were stated as a percentage of the premium dollar and indicated state rate changes were developed by comparing a permissible loss ratio (50%) with an experience loss ratio. This paper proposes to set forth the procedures now followed under the “needed premium revenue” method of ratemaking presently in effect. Where practicable the steps of a rate revision will be illustrated with exhibits relating to a typical revision, the 1957 revision of automobile physical damage rates for the state of Connecticut.