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Estimating The Effect Of Statutory Changes On Insured Casualty Losses Using Generalized Indicator Variables, Ruy A. Cardoso

Journal of Actuarial Practice (1993-2006)

Techniques for estimating future insured losses in casualty insurance typically assume consistency in the insurance environment over time. Statutory changes, however, can create sharp discontinuities in the loss-generating process, complicating the estimation of those losses. Using indicator variables and dummy variables allows for quantification of the effect of such discontinuities. Three examples from private passenger automobile insurance are presented to illustrate how these variables can be used.