Re: NCCI experience rating plan - Part 6 review

(no name) ( (no email) )
21 Jul 98 9:12:55

The policy minimum premium is the least amount you will charge regardless of
the modification. In any experience/retrospective rating plan, there is
generally a minimum and a maximum premium which serves to spread losses among
insureds. Otherwise the concept of insurance would break down, since insureds
with catastrophic losses might pay exorbitantly high premiums and those with no
losses might pay close to nothing. Minimums and maximums are covered in
Tiller's chapter of the Foundations text.

The expense constant is your fixed expenses which are added to losses, instead
of being loaded multiplicitively as a percentage of loss or premium (your
variable expenses). The expense constant also serves to more equitably
allocate costs among insureds, as there are fixed cost associated with issuing
any policy, regardless of the policy size. ISO's "Expense Provisions in the
Rates" compares fixed and variable expenses.

The loss constant is also additive, but in reality it is added to premium, not
losses. The loss constant is used to smooth the loss ratio between large and
small insureds. It has little effect on the expected loss ratio of large
insureds, but will flatten the ELR implicit in the rates of small insureds.
The loss constant is described and demonstrated in Feldblum's Workers
Compensation paper on page 86.

Yin.Lawn@cna.com ("Lawn,Yin") on 07/21/98 06:03:00 AM
To: Studygroup9@lists.Casact.org @ INTERNET
cc: (bcc: Gwendolyn L. Anderson)
Subject: NCCI experience rating plan

In NCCI experience rating plan, loss constant, expense constants and
policy minimum premium are not subject to experience rating
modification. Anyone has any idea what is loss constant, expense
constant, and policy minimum premium?

---Yin