© 1999 national council on compensation insurance, inc. ® experience rating: the x-files the cas...

© 1999 National Council on Compensation Insurance, Inc.

®

Experience Rating: The X-Files

The CAS Seminar on Ratemaking

Opryland

Nashville, Tennessee

March 11-12, 1999

Robin GillamVice President, Corporate Actuarial


®

My Mod’s Too High...

Did the rate go down?

How much is your own fault?


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Experience Mod - Year 1

(A) WEIGHT (C) EXPECTEDEXCESS (D – E)

(D) EXPECTED TOTAL (E) EXPECTEDPRIMARY

(F) ACTUALEXCESS (H – I)

(G) BALLAST (H) ACTUAL TOTAL (I) ACTUALPRIMARY

0.08 14395 21433 7038 0 9900 3122 3122

PRIMARYLOSSES

STABILIZINGVALUE

RATABLEEXCESS TOTALS

(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 3122 23143 0 26265(E) (A) (C) (K)

EXPECTED 7038 23143 1152 31333

UNCAPPEDMOD (J) / (K)

0.84

CAPPEDMOD

0.84

ABC Corp


®

Experience Mod - Year 2

ABC Corp(A) WEIGHT (C) EXPECTED

EXCESS (D – E)(D) EXPECTED TOTAL (E) EXPECTED

PRIMARY(F) ACTUAL

EXCESS (H – I)(G) BALLAST (H) ACTUAL TOTAL (I) ACTUAL

PRIMARY

0.07 9571 14933 5362 219 8000 7009 6790

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 6790 16901 15 23706(E) (A) (C) (K)

EXPECTED 5362 16901 670 22933


1.03

CAPPEDMOD

1.03


®

My Mod’s Too High...

Are the claims over-reserved? Have you read the fine print


®

Experience Mod - Original

ACME, Inc.(A) WEIGHT (C) EXPECTED


PRIMARY(F) ACTUAL


PRIMARY

0.25 217827 377142 159315 1831946 15000 2185584 353638

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 353638 178370 457987 989995(E) (A) (C) (K)

EXPECTED 159315 178370 54457 392142


2.52

CAPPEDMOD

2.52


®

Experience Mod Losses Reduced to Settlement Values



PRIMARY(F) ACTUAL


PRIMARY

0.25 217827 377142 159315 1820054 15000 2173077 353023

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 353023 178370 455014 986407(E) (A) (C) (K)

EXPECTED 159315 178370 54457 392142


2.52

CAPPEDMOD

2.52


®

Experience Mod All Labeled Losses Reduced



PRIMARY(F) ACTUAL


PRIMARY

0.25 217827 377142 159315 1479166 15000 1828857 349691

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 349691 178370 369792 897853(E) (A) (C) (K)

EXPECTED 159315 178370 54457 392142


2.29

CAPPEDMOD

2.29


®

High primary credibility

Plenty of swing:

My mod changed too much

Revised Experience Rating Plan(RERP)


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Sample 1 - No Losses






0.07 2019 3150 1131 0 8100 0 0

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 0 9978 0 9978(E) (A) (C) (K)

EXPECTED 1131 9978 141 11250


0.89

CAPPEDMOD

0.89


®

Sample 2 - Small Losses






0.07 2019 3150 1131 219 8100 6510 6291

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 6291 9978 15 16284(E) (A) (C) (K)

EXPECTED 1131 9978 141 11250


1.45

CAPPEDMOD

1.45


®

Sample 3 - One Large Loss






0.07 2019 3150 1131 129500 8100 134500 5000

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 5000 9978 9065 24043(E) (A) (C) (K)

EXPECTED 1131 9978 141 11250


2.14

CAPPEDMOD

1.60


®

Sample 4 - Multiple Losses






0.07 2019 3150 1131 129500 8100 135791 6291

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 6291 9978 9065 25334(E) (A) (C) (K)

EXPECTED 1131 9978 141 11250


2.25

CAPPEDMOD

1.60


®

Graduate impact of eligibility

Increase minimum ballast

Smooth caps on mods

Graduated Experience Rating Tables(GERT)


®





0.05 2019 3150 1131 0 13500 0 0

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 0 15418 0 15418(E) (A) (C) (K)

EXPECTED 1131 15418 101 16650


0.93

CAPPEDMOD

0.93




®

Sample 2 - Small Losses(A) WEIGHT (C) EXPECTED


PRIMARY(F) ACTUAL


PRIMARY

0.05 2019 3150 1131 219 13500 6510 6291

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 6291 15418 11 21720(E) (A) (C) (K)

EXPECTED 1131 15418 101 16650


1.30

CAPPEDMOD

1.22



®

Sample 3 - One Large Loss(A) WEIGHT (C) EXPECTED


PRIMARY(F) ACTUAL


PRIMARY

0.05 2019 3150 1131 129500 13500 134500 5000

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 5000 15418 6475 26893(E) (A) (C) (K)

EXPECTED 1131 15418 101 16650


1.62

CAPPEDMOD

1.22



®


Sample 4 - Multiple Losses(A) WEIGHT (C) EXPECTED


PRIMARY(F) ACTUAL


PRIMARY

0.05 2019 3150 1131 129500 13500 135791 6291

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 6291 15418 6475 28184(E) (A) (C) (K)

EXPECTED 1131 15418 101 16650


1.69

CAPPEDMOD

1.22


®

Reduce financial penalty of small losses

Take the weight off medical only claims

Slightly increase excess credibility

Experience Rating Adjustment(ERA)


®





0.05 2031 2986 955 0 13500 0 0

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 0 15429 0 15429(E) (A) (C) (K)

EXPECTED 955 15429 102 16486


0.94

CAPPEDMOD

0.94




®

Sample 2 - Small Losses





0.05 2031 2986 955 66 13500 1953 1887

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 1887 15429 3 17319(E) (A) (C) (K)

EXPECTED 955 15429 102 16486


1.05

CAPPEDMOD

1.05



®

Sample 3 - One Large Loss Loss





0.05 2031 2986 955 129500 13500 134500 5000

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 5000 15429 6475 26904(E) (A) (C) (K)

EXPECTED 955 15429 102 16486


1.63

CAPPEDMOD

1.20



®

Sample 4 - Multiple Losses(A) WEIGHT (C) EXPECTED


PRIMARY(F) ACTUAL


PRIMARY

0.05 2031 2986 955 129500 13500 134887 5387

PRIMARYLOSSES

STABILIZINGVALUE


(I) (C) ( 1 – (A)) + (G) (A) (F) (J)

ACTUAL 5387 15429 6475 27291(E) (A) (C) (K)

EXPECTED 955 15429 102 16486


1.66

CAPPEDMOD

1.20


© 1999 national council on compensation insurance, inc. ® experience rating: the x-files the cas...

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