If you impose a deductible on an insurance policy that you’ve written, what fraction of expected losses do you eliminate from your expected liability? This is measured by the *Loss Elimination Ratio* .

**Definitions**:

*Ordinary deductible*— The payment made by the writer of the policy is the loss minus the deductible . If the loss is less than , then nothing is paid.*Franchise deductible*— The payment made by the writer of the policy is the complete amount of the loss if is greater than .

A common type of question considers what happens to LER if an inflation rate increases the amount of all losses, but the deductible remains unadjusted. Let be the loss variable. Then is the inflation adjusted loss variable. If losses are subject to deductible , then

**Memorize**:

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I want to know,what is expected cost per loss and expected cost per payment in ordinary deductible and then why is important to derive the expected cost and variance.

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