Question

how reliable and accurancy of loss forecast method to insurance company ?

Answer 1

The loss forecast method is reliable and accurate to insurance companies but to a very high extent. The loss forecast method is based on the expected loss ratio and this technique helps in determining the projected amount of claims that will be relative to earned premiums by an insurance company.

Moreover the loss forecast method is also based on past claims occurrence data and this enables the insurance companies to make reliable and accurate adjustments with regards to their expected losses.

The loss forecast method mainly makes use of pas loss data which is used to predict future losses. It is only when past data spans a sufficient number of years (i.e. 5 or more years) that the loss forecast method becomes all the more reliable and all the more accurate.

But the loss forecast methods are not reliable and accurate to a very high and significant effect as it does not incorporate changes in operations of the insurance company, changes in legal environment, and inflation.