Masonry Magazine September 1967 Page. 15
insurance for contractors
SECOND EDITION
Revised to include the new policy
forms and entirely new material on:
* Contract Bonds
* Architects' and Engineers'
Professional Liability
* Contractors' Equipment Floaters
* Builders' Risk Insurance
* Employee Benefit Liability
* Uniform Hold-Harmless Clauses
* Composite Rating
by
Walter T. Derk
Assistant Vice President
FRED. S. JAMES & Co.
Insurance Brokers and Consultants
Since 1858
PART XI
Experience Rating and Retrospective Rating along
with examples are covered in this month's installment
of Insurance For Contractors. Save this and every article on this important topic.
EXPERIENCE RATING
Contractors and others, when their premium level at normal manual rates reaches a practical level, become eligible for experience rating; that is, a credit or debit applied to manual rates, dependent upon the ratio of premiums to losses over a given number of years. These rating plans vary a good deal with the kind of coverage involved. In principle, they are similar, however, all are closely scrutinized by state insurance departments, interstate rating authorities and independent rating organizations.
Manual rates contemplate a certain average level of losses and, by mathematical formula, a comparison is made of actual losses reported over roughly three years compared with the expected level. Weights are allowed to minimize the effect of single catastrophe losses so that the small candy store owner who reports one serious case does not pay an astronomical premium for eternity.
In general, a frequency of claims will count more in experience rating than will severity, but this effect decreases as premium volume increases.
RETROSPECTIVE RATING
Guaranteed Cost Experience Rating Plans take into account the insured's premium-loss record over the past several years to arrive at a fixed renewal rate. Retrospective Rating does exactly the same thing, then goes one step further to determine the final premium for policies subject to the Plan, only after they expire. By adjusting the standard premium in direct relation to losses reported under those very policies, Retrospective Rating reflects more promptly and more closely the effect of such loss experience, good or bad. In short, cost-plus insurance.
Available as an option to Guaranteed Cost Plans, Retrospective Rating premiums are extremely popular with all classes of business developing sufficient premium under normal rating methods to make them workable. Recent refinements, particularly under Plan J, reduce the premium level required for such plans and bring the minimum/maximum premium percentages down to a range acceptable to most businesses. Some contractors engaged in extra-hazardous work may (Please turn page)