- Loss of earnings
- Assistance (e.g. long-term care costs)
- Pain and suffering (e.g. physical and emotional stress caused by an injury)
- Remainder (e.g. costs of adapting accommodation)
Here, we assume the injured is a 30-year-old man whose wife has no income, and they have two young kids. He works with a large company, with an above average income and bright career prospects.
In charts 1a, 1b and 1c, we summarise our estimated bodily injury claim sizes in six Asian markets under each selected degree of injury scenario:
Step 2: Develop large loss scenarios
Next, we estimate the potential number of injuries and amount of property damage for each of the three large loss scenarios we have selected just for this discussion. These scenarios, which as the table shows, are derived from a combination of historic and hypothetical events.
As the severity of large claim experience in Asia is fairly low as compared with Europe and US, our large loss scenarios are developed based on European large loss experience.
How relevant are these European loss experience for Asia? They are relevant because similar accidents also occurred in Asia, although the loss amounts involved were lower and the actual circumstances might vary. Examples include:
- For scenario 1, an express train collided with a dump truck at a railway crossing in Hokkaido Japan in January 2010.
- For scenario 2, one people killed and 14 injured when a LPG tanker caught fire after hitting a car in Kollam in 2009. A number of shops nearby were also gutted in the fire.
- For scenario 3, two people killed and 38 injured after a long-distance bus overturned and was hit by a truck inside Muchong tunnel on the highway between Hezhou and Zhongshan in southern China.
These European cases thus serve as useful reference for developing more extreme scenarios of its kind.
Step 3: Estimate PML amounts
With the above information, an estimated PML amount can be easily calculated.
For example, if large loss scenario 1 happens in your market, assuming all injuries suffer from tetraplegia, the estimated PML amount would be:
Amount of claim per tetraplegic injury x Number of injuries under large loss scenario 1 + Property damage amount under large loss scenario 1
The above are just three examples of large motor losses which are highly driven by bodily injuries. The property damage amount would be subject to local regulations and policy limits. For those markets where third-party property damages are not capped, it is possible that other scenarios may cause even larger losses.
If you are interested to know more about this subject, or if you have other methodologies to share with us, please feel free to contact Reto Brosi, Udo Alfare or Adeline Chua (details, top right). We are more than happy to discuss this with you.
