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Expenses loading

The amount added to a premium calculation to allow for the insurer’s expenses. Other premium computation items are: contingency loading, risk premium and profit loading.
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The element of the Insurance premium covering the Policy-holder’s share of the Insurer’s administrative costs.

Expenses risk

A particular risk for life companies whose relatively high fixed costs need to be recovered by the expenses loading. The recovery therefore depends on the volume of sales. In non-life business the main expenses risk factor is the significant cost of legal expenses that arise in court settlements such as employers’ liability and motor insurance injury claims.

Experience

REINSURANCE: (01) The loss record of an insured or of a class of coverage. (02) Classified statistics of events connected with insurance, of outgo or of income, actual or estimated. (03) What figures show to have happened in the past. Experience may be compiled on different bases to provide various means of appraisal, viz., Accident Year Calendar Year or Policy Year but for underwriting purposes should always compare earned premium with incurred losses after the latter have been modified by an allowance for loss development and incurred but not reported losses (IBNR).
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A record of losses.
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MEDICAL,USA: Classified statistical loss record of an insured, class of coverage, or usage of health plan benefits by subscribers or members. It is usually documented as a percentage or ratio (e.g., relationship of premium to claims for benefits).
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The record of loss belonging to an agent, insured, or another category. This term can also mean a statistic made up of the ratio of losses to premiums.

Experience analysis

Statistical examination of insurance experience for any part of the group business such as a line or a territory; any group of cases, coverages, or benefits; or any single case, coverage, or benefit. The study may include single or multiple experience periods, past and future trends, and various descriptive statistics.

Experience Rating

REINSURANCE: A method of determining the premium for a reinsurance contract based, in whole or in part, on the loss experience of the ceding company during prior or the current contract period(s) as specified in the reinsurance contract. See Rating.
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A method of rating that uses past experience to establish current rates.
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UK: A method that uses past experience to establish current rates for a particular insured by adjusting normal rates up or down. In nonproportional treaties the reinsurer fixes a rate based on premiums and loss portfolios rather than exposure inherent in the business. See also RETROSPECTIVE RATING.
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A rating method under which the insured’s rate depends at least in part on the insured’s own prior loss experience. It takes both claim size and claim frequency into account. In determining the quantum of the rate change, the actual loss experience may be modified for considering exposure changes not reflected by earlier experience. Thus the loss history is used to draw conclusions about the future loss possibility.
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A way of adjusting premium amounts based on previous experiences for that specific risk, instead of being based on loss experience for all risks.
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MEDICAL,USA: Classification of rates from a group or subgroup of subscribers, members, or beneficiaries from previous insurance claims history to establish current insurance premium rates. Two types of experience rating are prospective and retrospective . In prospective rating, the premium includes anticipated costs of medical services, plus a margin for higher-than-expected claims, expenses, and profit. In retrospective rating, the insurer may refund some or all of the difference between claims expenses and paid premiums after the coverage period ends. Also called community rating .
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Experience rating is designed as an incentive for employers to minimize workplace injuries. When an employer’s workers compensation premium reaches a certain level (e.g., $5,000 a year) the published rate is “”modified”” by taking into account the employer’s reported losses in contrast with expected losses. The expected losses are based on the employer’s industry. The calculation of an experience modification is usually done in most states by the National Council on Compensation Insurance (NCCI) based in Florida.If losses are less than expected, the employer will have a credit modification, known as a “”credit mod.”” If losses exceed expectations, the employer has a “”debit mod.”” The experience rating period is usually a 3-year moving time line. That is, in year 4, the employer drops year 1 and the experience time line moves to years 2, 3, and 4.

For example, if losses come in less than expected over the 3-year experience rating period, the employer may have a credit mod of .90. This means a 10% reduction in workers compensation premiums from the published rates. If, on the other hand, actual losses exceed expected losses, the employer will end up with a debit mod of, for example, 1.15. This means the employer will pay 15% above the published workers compensation rates.

Small losses (usually those under $5,000) are more influential in an employer’s experience rating than are large losses. There are several reasons for this. One is that small losses are easier to predict. Another is that more frequent small losses generate more expense to handle than one or a few large losses. Third, small losses are easier to prevent. Thus, employers are encouraged, through the use of the modification factor, to enforce workplace safety.
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US: The process of determining the premium rate for a group risk, wholly or partially on the basis of that group’s experience.