NCCI - 1998 NCCI adj to WC experience rating plan Flashcards Preview

CAS Exam 8B > NCCI - 1998 NCCI adj to WC experience rating plan > Flashcards

Flashcards in NCCI - 1998 NCCI adj to WC experience rating plan Deck (7):

Describe the 3 adjustments made in the 1998 NCCI adjustments.

1. Reduced medical only losses
[] only 30% of medical only losses (primary and excess) are included in mod calculation

2. Increase excess loss weight
[] increased slightly for most size risks
[] larger increase for larger size risks

3. inflation sensitive split point
[] 5,000 split became indexed to the WC average cost per case
[] the split will move in 500 increment


Explain the reasons for the 3 adjustments in 1998 plan.

1. reduced medical only claims
[] reduces the financial incentive for an employer to not report med only losses in an effort to manipulate its Mod

2. increase excess loss weights
[] improve plan performance
[] increase incentive for safety
[] Mod more responsive to experience

3. Inflation sensitive split point
[] prevents the impact of primary losses on Mode, as a representation of freq, from eroding over time


Cap on disease losses

only applicable if there are multi disease occurrence
[] Ap - policy year loss cap at (10,000 + 0.4Ep)
[] A - policy year loss cap at (3*SAL + 1.2E)


Experience Period

>=21 month and


Eligibility Requirement for the Plan

a. latest 24 month of exp. period develops a sub. premium >=col A of the table


b. if account has > 24 month of experience, average annual subject premium >= col. B
Avg Annual sub. premium = [total sub. prem/total month] *12


Two ways NCCI add stability to WC experience rating

1. Split loss into primary and excess component
- both primary and excess loss are less heavy tailed

2. Introduce a limit to how much of any one loss enters ratemaking. WC has accident limit for single and multiple claimant.


Compare NCCI and ISO for:
(i) max amount of credibility
(ii) type of split plan
(iii) loss trend is handled
(iv) how ALAE is handled

(i) NCCI: risk can not get 100% credibility
ISO: can get 100% credibility
(ii) NCCI: single split plan, split point at 5000
ISO: no split plan
(iii) NCCI & ISO both detrend expected losses
No trend is applied to actual loss
(iv) ISO: ALAE is included in mod calculation
NCCI: ALAE is not included