View Full Version : Commerical Expereience Rating (Credit/Debit Percentage)
02-11-2011, 09:45 AM
How is it used and on what? I don't think the textbook gives us the perspective on this.
Also I guessed:
if CD<0, it would be a Credit, and there will be a reduction in premium
if CD>0, it would be a Debit, and there will be an increase in premium.
Is it right?
02-11-2011, 11:05 AM
If a customer's business is large enough that it's actual loss experience can be an aid in determining the "correct" premium--but not large enough to generate credible experience--then it's actual experience is used to modify the manual rate.
Catepillar (http://www.cat.com/about-the-company) is large enough that pricing its CGL coverage would simply use their own experience.
The Subway corporation (not the individual delis) would likely not be large enough to generate sufficient experience to price their CGL coverage with only their own experience. But it's large enough that their actual experience would not be commensurate with the "average" risk contemplated by the manual rates; so Experience Rating would be applied.
Finally, think of a local mom-and-pop type restaurant (one that is not part of a larger franchise/chain). It's not large enough to indicate that its experience is any different from the "average" risk contemplated by the manual rates, so Experience Rating is not applicable.
And the rest of your post is spot on.
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