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The envisaged presentation (in the area of flatrated fleets) will start from the calculation of the (actuarially correct) technical premium and will then deal with the commercial premium which is directly derived from the former one and subsequently adjusted in order to fit the needs of the fleet insurance market.
Both will be required to determine the adjustment factor during the yearly premium adjustment process whilst
- determining the profitability of the future flatrated fleet portfolio
(i.e. the bottom line) and at the same time
- ensuring an optimal growth in gross written premium
(i. e. the top line).
In this context the lapse analysis plays a crucial role to identify the segments which are more or less price-sensitive, thus giving the portfolio manager an effective tool to optimize the premiums without neglecting the profitability of the whole big fleet portfolio.
There the technical premium (or TP) comes into play.
It guarantees that the effect of a client's reaction (renewal or lapse) can be quantified, thus preventing an unneccessary lapse of a (highly) profitable account respectively a suboptimal premium increase.
Of course, legal restrictions have to be considered in this context, prohibiting an arbitrary or unjustified premium increase;
The relation between the offered premium and the technical premium is here of paramount importance.
In the case of a flatrated fleet model with a Bonus-Malus system, the challenge consists of predicting the final loss ratio (at the end of the year) - relevant for an automatic discount or loading of the actual premium next year - whereas the decision of the final premium adjustment is usually made in the middle of the year. How this predicament can be resolved should be subject to further research.