To: casnet@lists.casact.org
cc: (bcc: Brandon Keller/BOCA/NCCI)
Subject: Procedure for calculating correct Insurance Charge
What is the most actuarially sound procedure for calculating the
appropriate table M charge when the required insurance charges "fall off"
the chart?
For example:
Expected loss group=42
Value difference=0.80
Entry Difference = 3.50
Since Table M only shows entry ratios up to 3.00, one must interpolate
beyond that point. When entry ratios approach 3.00, the insurance charge
approaches zero. In cases like this I have been assuming that insurance
charges with entry ratios above 3.00 are zero and end up with the following
results:
Minimum Entry Ratio = .23
Maximum Entry Ratio = 3.73
Savings = .031
Charge = .000
Insurance Charge = -.031
But does this make a whole lot of sense? This insured has expected losses
of approximately $170k. The maximum premium factor for this insured was
approximately 4. We know from our NCCI ELF tables that an ELF for an
accident limitation of $610k ($170k * 4 = $610k) can be in the neighborhood
of 0.05. That leads me to believe that the insurance charge for this policy
limitation should be at least 0.05 (since several accidents may combine to
push the policy losses over $610k). However I am getting no charge due to
this maximum premium factor.
What am I missing?
--Hayden Burrus
Insurance Data Resources
5200 Town Center Circle
Suite 500
Boca Raton, FL 33486
Visit the CAS Web Site at http://www.casact.org
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