mxmrt
Insurance companies sell the ability for people or businesses to transfer risk to them. This makes insurance unique in that the true cost of the risk is not known at the time of transfer. Actuaries are the people who work to determine the rates to be charged, and often use statistical methods to determine these rates.
There are many different tasks that actuaries work on, but the most fundamental is that of ratemaking. Often, the actuary determines if the current rates being charged to customers are sufficient to cover expenses, profit, and expected losses.
While there are many approaches to ratemaking, this project used the methods outlined in the CAS text basic ratemaking which can be found here.
While the textbook is very long, the basic ratemaking formula can be boiled down to the following formula. R = (L + FE) / (1 - V - Q) / E. While this looks complex, it isn't all that complicated. It says that the average rate to charge per exposure, R, is equal to the sum of our expected losses and fixed expenses, L and F.E. respectively, after it is grossed up for variable expenses and profit,V and Q respectively, and then divided by our quantity of exposures, E.
The app can be found here. It takes all the basic inputs previously described and will allow a user to determine the average rate per exposure. Enjoy!