Exam 8: A deductible option changes both payments and reported experience
A deductible removes small payments and changes the insurer’s severity and payment frequency. Whether policyholder behaviour changes is a separate modelling question. Do not treat a higher deductible as a uniform percentage reduction in every loss.
Worked example or practice scenario
For a loss of 300, raising an ordinary deductible from 100 to 200 reduces payment from 200 to 100. For a loss of 3,000 with no other limit, payment falls from 2,900 to 2,800. The payment percentage reduction differs by loss size.
Try this next
Define the loss distribution and calculate expected payments under each deductible. Distinguish per-loss and per-payment severity. Explain what data could be missing when historical records include only payments above the existing deductible.
Reading sources
ActNet editorial guide · October 1, 2026 · Original illustrative examples.