1. LDD vs self-insurance
    • LDD is a first dollar, fully insured policy w insr providing all services and paying all losses, w an endorsement that requires insured to reimburse all losses up to a deductible
    • self-ins only brings in an insr for XS covg. Have to self-serve lower losses or hire a TPA
  2. Pricing LDD
    • M1: P = Full Covg - Exp reimbursable
    • M2: P = [EL(XL+ULAE+LBA)+SP(GO+ER)]/(1-A-T-P)
    • XSWCP = [EL*XL*(1+ULAE)+SP*GO]/(1-A-T-P)
    • LBA: loss based assessment;¬†SP: manual premium
    • GO: general overhead;¬†CR: compensation for credit risk
  3. Considerations for a particular insd that might make industry-wide ELPPF inappropriate
    • nature of the insd's business: unusual exposure to certain types of risks or unusual current business conditions
    • insd's prior loss history
    • insd's attitude towards workplace safety
    • potential overlap btwn ELPPF & insurance charge
    • whether ALAE is rated w loss
  4. Why LDD expense¬†≥ fully insured plan
    • expense related to seeking reimbursement from insd
    • data reporting more complicated since info seggregated
    • expense associated w producing LDD endorsement
    • potential expense of upgrading computer systems to handle LDD
  5. Why LDD riskier for insr than fully insd plan
    • XS harder to estimate
    • reserve duration > XS loss, more int rate risk
    • credit default risk is higher
  6. Why XS plan risker than LDD
    • insr does not control claim handling
    • competition is almost exclusively on price so profit is low
    • payout period longer
    • Insurer Risk Level: Fully Insd < LDD < XS plan
Card Set
Pricing Worker's Compensation Large Deductible and Excess Insurance