Re: NCCI experience rating plan - Part 6 review

(no name) ( (no email) )
21 Jul 98 12:02:09

Please excuse oversimplifying your question. No, I wasn't trying to say that
minimum premiums are calculated in the same way even within the realm of
experience rating. Tiller shows the Workers Comp experience rating plan
minimum is based on administrative expenses for the projected full time
equivalent personnel for the policy period, but I am not so sure that method
would necessarily work with the NCCI plan. In any case, it is an example of a
method that produces a fixed dollar value that would not be subject to the
modification. Are you looking for an exact method to use for calculating
minimum premium for the NCCI experience rating plan? If you are looking for a
formula, I might be able to ask someone in another department. Are you also
interested in an expense constant formula? It doesn't seem important for the
exam, but I guess it could help to jog the memory a bit.

Yin.Lawn@cna.com ("Lawn,Yin") on 07/21/98 10:12:00 AM
To: studygroup9@lists.casact.org @ INTERNET
cc: (bcc: Gwendolyn L. Anderson)
Subject: Re: NCCI experience rating plan - Part 6 review

Is this minimum premium the minimum premium in Retro plan? That can't
be true. Minimum premium in Retro is expressed as a percentage of
standard premium which has already been subject to the Mod. For example,
I can quote a Retro with a minimum premium of .3 of standard premium,
but experience modification has already been applied in order to
generate my standard premium.

----------
From: Gwendolyn L. Anderson
To: Lawn Yin
Cc: studygroup9
Subject: Re: NCCI experience rating plan - Part 6 review
Date: Tuesday, July 21, 1998 4:12AM

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