Re Minimum Premium, I agree with your remarks provided you are talking
exclusively about a retrospective rating plan, for which there generally is
a "Maximum Retrospective Premium" and a "Minimum Retrospective Premium".
However, a WC policy can be experience rated and not be retrospectively
rated and there will still be a "Policy Minimum Premium". Part One (I.A.5.
ERP Manual) of NCCI's Retro Manual spells out that "Retro rating is an
independent option and not a substitute for experience rating. Retro rating
is superimposed on the premium resulting from experience rating."
Minimum Premiums are displayed by classification and discussed in more
detail in NCCI's Basic Manual on p. R29. Item 5 reads, "The minimum premium
is not subject to an e.r.m." From a practical standpoint, risks that might
be subject to a Minimum Premium are usually far too small to want to be
rated retrospectively.
Also, I agree with your remarks on Expense Constants but would qualify them
by adding that it's entirely possible that not all fixed expenses are
covered by the EC.
Thanks for bearing with me.
Paul
----------
> From: Gwendolyn L. Anderson <Gwendolyn_L._Anderson@ffic.com>
> To: Lawn Yin <Yin.Lawn@cna.com>
> Cc: studygroup9 <studygroup9@lists.casact.org>
> Subject: Re: NCCI experience rating plan - Part 6 review
> Date: Tuesday, July 21, 1998 5:12 AM
>
> 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
>
>
>