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Factors reflected in experience rating
- compensation
- variation in plants & premises
- operating processes
- materials involved
- management
- morale of employees
- claim consciousness
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Weight to actual experience
As VHM incr, we can increase cred of actual
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Premium level vs rate level
- rate lvl: depends on manual rates only
- premium lvl: also depends on experience rating, schedule rating, ...
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Off-balance
- SP / MP
- premium weighted average modification
- if adequate, should be close to 1 (slight credit because only good large risk qualify for experience rating)
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Modification factor
- prospective measure
- not designed to recoup past losses or rebate savings
- not necessarily signal of poor performing insd
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2 conditions for correct credibility
- necessary: cr & debit risk should produce same LR
- sufficient: risks within a group can not be subdivided on any experience basis to produce diff LR (not requirement)
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Gillam quintile test
- group risks by size, separate into quintiles based on mod
- for each group calculate unmodified ratio and modified ratio
- test statistic: var(mod ratio) / var(unmod ratio)
- low test statistics means plan eliminated most of btwn var
- efficiency test: same but on all risks (no quintile)
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WC loss categories
- serious: indemnity portion of fatal / PT / major
- non-serious: indemnity portion of TT / minor
- medical
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Plan parameters by state & size
- state reference point (SRP)
- weighting (W)
- ballast (B)
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Rating values by state & classification
- expected loss rates (ELR)
- discount ratios (D-ratios)
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Modification factor
- M = [Ap +WAX + (1-W)Ex + B] / (E + B)
- E = Σ (Payrolli . 100) * ELRi
- Ep = Σ Di * Ei
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State reference point (SRP)
- index of benefits in the state
- SRP = 250 * state avg cost per clm (SACC) round to 5K
- SACC based on 3yr trended non-limited loss (except 100K limit for employees liability)
- SRP can not decrease from prior yr, unless significant benefit reduction
- G = SRP / 250K, round to 0.05
- B > 0, 0 < W < 1
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Expected loss rates (ELR)
- expected loss per $100 payroll
- start w manual rate loss cost
- multiply by PLR to remove tx, expense, profit
- adjust for time frames differences
- adjust to reflect that policy does not limit clm size
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ELR by hazard group / class
- determine avg cost per case for 3 serious injury types
- calculated XS ratio
- weight XS based on injury weights
- hazard group adjustment factor = 1 - XS ratio
- HGAF * ELR factor & apply to each class' rate
- check for reasonableness
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D-ratio
- calculated from most recent 3yrs (1/1/90 uses 87)
- calculated by injury types
- weight by injury
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Experience rating stability
- capping: limited so SAL = 10% * SRP
- swing limits: limit to rate of chg btwn periods
- avg impact of stabilizers spread to all classes to achieve selected rate change
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