This course explains modern approaches to pricing insurance risk, the process of setting a technical premium, including a target risk margin or profit load. PIR is the last mile of underwriting, after loss costs and expenses have been estimated, and it is critical to insurance company management. A PIR framework embodies an insurer’s risk appetite, determining which risks it accepts onto its balance sheet and how it structures its capital to support those risks.
Risk margins have an out-sized impact on the insurance market despite being low for many lines of business. Personal property may have a single-digit margin, but it incorporates reinsurance priced with margins of 50 percent or more. When the reinsurance markets become stressed—as seen most recently after the events of 2017—the importance of understanding the economic cost of high-risk-margin, high-volatility business becomes clear.
PIRC explores different approaches to loading loss costs for risk and allocating capital and risk margins.