Multi-Line Treaty Cost Estimation via Aggregate Splitting
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Solution Overview
Problem
Multi-line insurance treaties face difficulties in managing capital provisions and determining costs for insured losses due to varying business lines with different risks, accounting conditions, and geographical locations, especially when losses become known at different times, making it challenging to assess the impact of aggregate limits on individual business areas.
Innovation Solution
A computer-based system and method that determine a loss distribution for each business line, adjust losses by splitting the effect of aggregate deductibles and limits over time, and calculate estimated costs, allowing for continuous splitting of aggregate effects among lines throughout the temporal course, with adjustment factors applied to cumulative losses for each calculation period.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If multi-line treaties combine different liability and property classes of business in a single contract, then the insurer can cover more client risks in one product, but it becomes difficult to assess the influence of combined limits on individual business areas and determine costs for each line
Solution Approach 1:
The patent segments the multi-line treaty into individual business lines, each with its own loss distribution and capital provision calculations. By dividing the aggregate treaty into separate components (property lines, liability lines, etc.), the system can assess costs and capital requirements for each line independently while still maintaining the combined aggregate structure. This segmentation allows accurate cost determination for each business area despite the unified treaty framework.
2Adaptability or versatility
If different lines of business have losses becoming known at different times, then the treaty can accommodate diverse risk profiles, but it becomes difficult to manage capital provisions and monitor claims experience
Solution Approach 1:
The patent implements dynamic capital provision management by continuously updating loss distributions and capital requirements as losses become known across different lines of business. The system dynamically adjusts the allocation of aggregate limits and deductibles to individual lines based on current loss experience and timing. This dynamic approach allows the treaty to accommodate diverse settlement patterns while maintaining accurate real-time capital management and claims monitoring.
Solution Approach 2:
The system incorporates feedback mechanisms that continuously monitor claims experience and loss developments across all business lines. By tracking losses as they become known and feeding this information back into the capital provision calculations, the system automatically adjusts capital requirements and limit allocations. This feedback loop enables effective management of diverse risk profiles with different loss recognition timing without manual intervention.
3Device complexity
If the treaty uses a combined aggregate deductible and aggregate limit, then the structure simplifies the contract terms, but it becomes challenging to determine the effect of aggregates on individual business areas
Solution Approach 1:
The patent introduces an intermediary computational layer that translates the aggregate deductible and limit provisions into line-specific adjustments. This intermediary system calculates adjustment factors that represent the effect of aggregates on each individual business line, enabling precise measurement of aggregate impacts while preserving the simplicity of the combined aggregate structure in the contract itself. The intermediary calculations bridge the gap between the simplified contract terms and the need for detailed line-level cost assessment.
Data Source
AI summary
A computer-based system and a computer-implemented method for estimating costs of a business line included in a multi-line treaty, which can determine the estimated costs for covering the insured losses of a line of business included in a multi-line treaty having an aggregate deductible and an aggregate limit.