Abstract

Insurance policy deductibles are an important feature of many insurance contracts because they determine the portion of a covered loss that must be borne by the policyholder before the insurer becomes responsible for the remaining claim amount. Deductibles can influence claim payments, claim frequency, and the overall cost of insurance losses. Consequently, changes in deductible levels may affect the expected loss ratio of an insurance portfolio and the adequacy of premiums relative to expected claims. This study examines the effect of insurance policy deductibles on expected loss ratios. The study will investigate how different deductible levels influence expected claims costs and the resulting loss ratios of insurance portfolios. Particular attention will be given to the relationship between deductible amounts, claim frequency, claim severity, insurer claim payments, and expected losses. The study will consider factors such as deductible levels, claim frequency, claim severity, expected claim payments, earned premiums, loss costs, policy exposure, and portfolio characteristics. Actuarial loss modelling techniques will be applied to estimate expected losses under different deductible structures and determine their effects on expected loss ratios. Comparative analysis will also be conducted to assess differences in loss ratios across alternative deductible levels. A quantitative research approach will be adopted for the study. Relevant insurance claims and premium data, together with hypothetical loss distributions, will be analysed using actuarial loss models, probability distributions, expected loss calculations, and loss ratio measures. Sensitivity analysis will be conducted to examine how changes in deductible levels affect expected claim payments and overall portfolio loss ratios. The study is expected to reveal that higher deductible levels may reduce the portion of individual losses paid by insurers and consequently lower expected loss ratios, particularly where claim frequency and severity remain relatively stable. Lower deductibles may result in greater insurer claim payments and higher expected loss ratios. The magnitude of the effect is expected to depend on the distribution of claim amounts, frequency of claims, policy exposure, and the relationship between deductible levels and premium rates. The findings of the study may provide useful information to actuaries, insurance companies, underwriters, risk managers, policyholders, and regulators. Understanding the effect of deductibles on expected loss ratios can support appropriate policy design, accurate premium determination, improved claims cost estimation, and effective portfolio risk management. The study may also assist insurers in evaluating deductible structures that correspond with expected loss experience and policyholder risk exposure. The study concludes that insurance policy deductibles are an important factor in determining expected loss ratios because they influence the amount of losses transferred to insurers and the resulting claims costs. It is therefore recommended that insurers incorporate deductible structures into actuarial pricing and loss models, regularly analyse claims experience across deductible levels, and consider the relationship between deductibles, expected losses, and premium adequacy when designing insurance policies.

Keywords: Insurance policy deductibles, expected loss ratios, insurance losses, claim frequency, claim severity, expected claims, deductible levels, insurer claim payments, loss costs, actuarial loss modelling, insurance pricing, premium adequacy, policy exposure, claims experience, portfolio risk.