Adjustment of a past value to current price levels by applying a reference index, to make historical data comparable.
Indexation involves restating a historical value (loss, premium, coverage limit) at current price levels by applying an index ratio. Formula: Indexed value = Historical value × (Target index / Origin index). In pricing, indexing historical losses produces a burning cost representative of current costs. Indices used may include: the consumer price index (CPI), construction cost indices, medical cost indices, or branch-specific indices. Indexation must be consistent with the nature of the indexed claim and must distinguish frequency inflation from severity inflation.
Construction claim paid in 2018: 200,000 EUR. Construction cost index 2018 = 100; 2024 = 126. Indexed value = 200,000 × 126/100 = 252,000 EUR for burning cost.
indexation, revalorisation, index linking, indexage, actualisation sinistres