Monitoring Territorial Rating: A Nonparametric Approach

The primary concern in pricing is normally the overall adequacy of rates companywide, by state, and by territory. The primary concern of this paper, however, is the RELATIVE adequacy of rates by parts of a territory: 1. Is the rating plan for a given line or coverage in a particular territory equally "correct" in its various parts (counties, zip code groups, etc.)? 2. Is a particular part assigned to the right territory? Because even whole territories often have experience of little or no credibility, traditional experience analysis is generally of little or no use. This paper circumvents the credibility problem by developing a nonparametric approach and statistical tests of the hypothesis that rates are "correct" throughout the territory under investigation. Actual applications of this process are shown. Credibility, Territorial Rating