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Old 02-05-2018, 02:14 PM
jerrytuttle jerrytuttle is offline
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Join Date: Oct 2001
Posts: 263
Default Premium discounts

Hi,

Although premium discount in WC may have more than one meaning, I think of it as a discount to larger premium sizes whose expense to premium ratios are lower than the expense ratio in the manual rate.

The main reason expense to premium ratios vary by size of premium is that agent's commission also varies by size of premium. You should be able to find your company's commission schedule, and this will help you determine what premium discount is appropriate.

Expense ratios also vary in the general underwriting expense component - it does not require twice the dollar amount of underwriting expenses to put a policy on the books that has twice the premium. However, this has a smaller effect than the commission, and this requires some special study (a time and motion study?) to measure.
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Thanks,
Jerry
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