Calculate a Pure Premium Indication
Calculate expected loss cost from frequency, severity, trend, and expense load.
A scooter insurer has 12,000 annual exposures, 960 claims, $1,440,000 of historical losses, 6% expected severity trend, and a 30% expense/profit load on premium. Is $14 per month enough? Pure premium: frequency x severity, trended to the policy period, then converted to premium with the load. The common shortcut is to divide total losses by exposures and compare that annual loss cost directly with monthly premium. Frequency 960 claims / 12,000 exposures = 0.080 claims per exposure year. Frequency is claim count per exposure unit. Here the exposure unit is one scooter insured for one year. Severity $1,440,000 / 960…
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