Premium transition factor

• US 20070118411A1
• Filed: 02/16/2006
• Published: 05/24/2007
• Est. Priority Date: 11/22/2005
• Status: Active Grant

• Current Assignee: Plymouth Rock Assurance Corp. (Investment Portfolio) (Plymouth Rock Company Incorporated)
• Original Assignee: Plymouth Rock Assurance Corp. (Investment Portfolio) (Plymouth Rock Company Incorporated)
• Inventors: Conner, William, Leibensperger, Marlowe, Arnold, Geoffrey
• Granted Patent: US 7,827,046 B2
• Time in Patent Office: Days
• US Class Current: 705/4
• CPC Class Codes: G06Q 40/08 Insurance
• CPC Class Codes: G06Q 50/30 Transportation; Communications
• CPC Class Codes: G06Q 50/40 Business processes related to the transportation industry shipping G06Q10/083

Abstract

Auto insurance customers can be transitioned from an initial rating algorithm A to a subsequent algorithm B by phasing in the transition over a period of several years. The premium charged during the transition period is equal to the premium calculated under the rating algorithm B minus a premium adjustment. The premium adjustment is given by the difference between the premium according to algorithm B minus the legacy premium from algorithm A, said difference being multiplied by a rating transition factor. The rating transition factor may be a linearly decreasing function which has a value of 1 just before the transition period and a value of zero at the end of the transition period. The transition period may be in the range of 3 to 8 years long.

Claims

1. A method for transitioning a block of insureds from a first rating algorithm A to a second rating algorithm B, said block of insureds comprising one or more insured drivers, said method comprising:

a) selecting a length of transition period n_o; and

b) charging each one of said insured drivers a premium for a given term n during said transition period wherein said premium is greater than or equal to the premium Pt_n given by the equation;

Pt_n=Pb_n−

Tf_n*(Pb_n−

Pa_o)

wherein;

i. Pb_n is the premium for term n of the transition period calculated by said algorithm B;

ii. Tf_n is a transition factor for term n; and

iii. Pa_o is the premium for term 0 of said transition period calculated by said algorithm A;

and wherein Tf_n is chosen such that the change in said premium Pt_n from the prior premium Pt<sub>(n−

1)</sub> is a normal change in premium for the majority of said insured drivers.

2. The method of claim 1 wherein said normal change in premium is less than 20% in magnitude.

3. The method of claim 1 wherein said transition factor Tf_n is given by the equation:

${\mathrm{Tf}}_n={\left(1-\frac{n}{n_o}\right)}^W$

where W is a shape parameter in the range of ½

to 2.

4. The method of claim 3 wherein W is greater than or equal to 1.0 if Pb_n is greater than Pa_o and W is less than or equal to 1.0 if Pb_n is less than or equal to Pa_o.