Many large workers compensation risks have embarked on self-insurance programs
in the past year. These risks have consistently had better than average loss
experience. Their withdrawal from the workers compensation insurance market
has significant implications for the current rate filing.
Question: How would you expect the off-balance of the experience rating plan
to change? Why?
Answer: The off-balance (the ratio of manual to earned premium) should
decrease as these larger risks would have credit modifications. Their removal
would increase the average modification and thus reduce the off-balance.
My question: I guess I really don't understand manual premium and I read
their explanation 20 times and the pages that they reference (85, 95-96) and
could not make heads or tails of it. I thought the manual premium for the
better risks (that are being omitted) would have had large credit
modifications. Since this lower premium is being removed, wouldn't the ratio
of manual to earned premium be increasing. I am so confused!
Thanks again,
Faith