NCCI - 1998 NCCI adj to WC experience rating plan

Question 1

Describe the 3 adjustments made in the 1998 NCCI adjustments.

Answer 1

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

Question 2

Explain the reasons for the 3 adjustments in 1998 plan.

Answer 2

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

Question 3

Cap on disease losses

Answer 3

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)

Question 4

Experience Period

Answer 4

> =21 month and

Question 5

Eligibility Requirement for the Plan

Answer 5

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

or

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

Question 6

Two ways NCCI add stability to WC experience rating

Answer 6

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.

Question 7

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

Answer 7

(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