Question

16 jonathan is an insurance agent who is trying to understand the reliability of experience rating in determining group premium rates for different types of groups. which of the following groups will have the lowest credibility rating for past claims experience? a2rvdtjwdytyefledwdycna0ngpudz09
a. a small group with a long history of group coverage that has a very low employee turnover rate
b. a small group with a short history of group coverage that has a high employee turnover rate
c. a large group with a short history of group coverage that has a very low employee turnover rate
d. a large group with a long history of group coverage that has a high employee turnover rate
a2rvdtjwdytyefledwdycna0ngpudz09?

Explanation:

To determine the group with the lowest credibility rating for past claims experience, we analyze the factors: group size, history of coverage, and employee turnover rate. Credibility in insurance experience rating depends on the stability and size of the group (larger groups and longer histories with low turnover provide more reliable data).

• Option a: Small group, long history, low turnover – more stable, higher credibility.
• Option b: Small group, short history, high turnover – small size (less data), short history (less time to accumulate data), and high turnover (unstable group composition) all reduce credibility.
• Option c: Large group, short history, low turnover – large size helps, low turnover stabilizes, so more credible than a small, high - turnover, short - history group.
• Option d: Large group, long history, high turnover – large size and long history help, despite high turnover, it's more credible than a small group with short history and high turnover.

So, the small group with a short history and high turnover (option b) has the lowest credibility.

Answer:

b. A small group with a short history of group coverage that has a high employee turnover rate