Experience Rating

Question 1

Advantages of Experience Rating (over just using Manual Premium)

Answer 1

Accounts for difference within a class
Accounts for differences not easily quantifiable

Question 2

Objectives of Experience Rating

Answer 2

Greater risk equity
Incentive for safety
Enhances market competition

Question 3

3 Criteria of a good Credibility Factor

Answer 3

1. Between 0-1
2. As size increases, cred doesn’t decrease
3. As size increases, cred increases at decreasing rate

Question 4

Schedule Rating

Answer 4

Adjust premium to reflect characteristics that affect loss but not showing in prior experience

Question 5

Quintile Test (Exp Rating)

Answer 5

Sort by mod
Calc manual and standard LR

Want increasing manual and no pattern standard

Question 6

Efficiency Test

Answer 6

Start with Quintile Test
Calc Var.S for both LRs
Test Stat = std var/man var

Want lower test stat

Question 7

ISO Exp Plan Experience Period

Answer 7

3 years where end of latest is at least 6 months prior to rating date

Eg rating date 2020 then 2016,2017,2018

Question 8

Eligibility for Experience or Schedule Rating (ISO Plan)

Answer 8

Experience Z>.07
Schedule Z>.03

Question 9

ISO Experience Plan

Answer 9

No Split
Commercial General Liability

Question 10

NCCI Experience Plan

Answer 10

Split Plan
Workers Comp
State Limits
Max Debit Mod

Question 11

NCCI Med-Only Claims

Answer 11

Reduce by 70%

Question 12

NCCI Multi-Claimants

Answer 12

Double split points and state limits

Question 13

NCCI Eligibility One vs Multi State

Answer 13

One: Sufficient premium volume
Multi: Meets premium eligibility in any one state and develops experience in additional states

Question 14

Off-Balance Factor

Answer 14

Weighted average Mod
Means nothing, not a predictor of performance
Risk size may affect (large have more weight)

Question 15

3 Parts of a split plan mod

Answer 15

1 is the Manual Rate
Primary layer mod
Excess layer mod

Question 16

Which larger Z_p or Z_e?

Answer 16

Z_p

Primary layer more stable and more experience
XS layer more volatile so less credible

Question 17

Things that can make Mod inaccurate

Answer 17

-Single Large Loss
-Recent changes to risk not reflected in experience

Question 18

Necessary condition for credibility

Answer 18

Debit and Credit risks have same Standard LR