Masonry Magazine July 1965 Page. 7
Insurance For Contractors
premium designed to fix the lowest possible premium under Retrospective Rating.
Maximum Premium
Conversely, the highest premium possible under Retrospective Rating, regardless of losses, expressed as a percentage of the standard premium.
Loss Limitation
The maximum amount chargeable under the Plan because of any one claim or accident, where such limitation applies. The charge for such limitation is sometimes indicated separately, sometimes included in the basic premium factor.
Making use of these terms, we can state the formula for determining the final Retrospective premium after expiration of policies:
Basic (Incurred Loss Conversion) Tax Retrospective premium (Losses Factor ) Multiplier Premium
Most plans call for evaluation of losses and adjustment of premium six months after expiration of the policy and annually thereafter. Final premium determination may be delayed by agreement until all claims have been closed.
mum premium factors to the insured. In the long run, they often provide insurance protection at the lowest cost possible, but it is difficult to state flatly which is better for everybody; too much depends upon the amount of losses incurred by policy year.
The premium penalty for cancellation of a three year plan by the insured before expiration is severe, a necessary inducement to continue the agreement once made, regardless of loss experience.
Example No. 2
Three Year Plan
Manual Premium $15,000 $14,000 $15,600
Experience Modification X.80 X 75 X .82
Standard Premium $12,000 $10,500 $12,792
(3rd year)
+12,000+10,500
(2nd year)
+12,500
(1st year)
$22,500 $35,292
*Basic Premium 18% 18% 18%
Or Or Or
$2,160 $4,050 $6,353
xample No. 1
One Year Plan
Manual Premium $15,000
Experience Modification (20% Credit) .80
Standard Premium $12,000
Basic Premium 20% of $12,000
or
$2,400
Minimum Premium *Variable each year under some plans
50% of $12,000
or
$6,000
Maximum Premium 135% of $12,000
or
$16,200
Loss Conversion Factor 1.14 X Losses
1.03
Minimum Premium 45% 45% 45%
Or Or Or
$5,400 $10,125 $15,881
Maximum Premium 130% 130% 130%
Or Or Or
$15,600 $29,250 $45,880
Loss Conversion Factor 1.14 1.14 1.14
Tax Multiplier 1.03 1.03 1.03
Losses Incurred $5,000 $11,500 $2,000
First Retrospective Adjustment
Basic (Incurred Loss Conversion) Tax Retrospective
+ X X =
Premium (Losses Factor ) Multiplier Premium
$2,160 $5,000 1.14 1.03 $8,096
Second Retrospective Adjustment
$4,050 $16,500 1.14 1.03 $23,546
Repeating our formula, then, the following losses would produce Retrospective premiums as indicated:
Basic (Incurred Loss Conversion) Tax Retrospective
emium (Losses Factor ) Multiplier Premium
$2,400 $8,114 1.14 1.03 $12,000
$2,400 $3,004 1.14 1.03 $ 6,000
$2,400 $11,691 1.14 1.03 $16,200
Third Retrospective Adjustment
$6,353 $18,500 1.14 1.03 $28,266
Retrospective plans may also be written for a period three years or for the duration of one particular project, as in the case of a joint venture. In general, three year plans provide a greater degree of protection to the insurance company than one year plans and, in turn, offer more attractive basic, minimum or maxi-
AUTOMOBILE PHYSICAL DAMAGE
Physical damage to owned vehicles, as well as those under long term lease, may be covered either as part of the Automobile Liability contract or entirely separate policy form. The premium is the same under either method. Insured hazards may include:
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ASONRY July, 1965
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