NCRB Adopts Excess Loss Factors

Raleigh, NC (CompNewsNetwork) - The North Carolina Rate Bureau has adopted and the North Carolina Commissioner of Insurance has approved changes to the Retrospective Rating Plan table for Excess Loss Factors.

The Retrospective Rating Plan contains an optional provision—an individual loss limitation—which limits the amount of loss arising out of any one accident that will be used in the calculation of retrospective premium adjustments. The charge for limiting losses is determined by application of an Excess Loss Factor (ELF).

The ELFs vary by loss limitation and hazard group. The variation in ELFs across hazard groups reflects the varying degrees of severity exposure to occupational hazards inherent to operations associated with each classification. ELFs need to be updated periodically for two reasons:

1. ELFs are computed from excess ratios, giving the percentage of losses expected to be above a given limit. For any fixed limit, inflation will increase the percentage of losses above that limit. Therefore, excess ratios and ELFs are periodically updated to accurately reflect the effect of inflation on those losses.

2. Overall excess ratios are computed as a weighted average of injury type excess ratios. Thus, excess ratios, and consequently ELFs, need to be updated regularly for changes in the mix of injury types. The proposed state ELFs are based on the data underlying the currently approved NCCI loss cost filing. This data was trended forward to the effective date of each state’s next anticipated NCCI loss cost filing. The proposed ELFs were then computed in the same way as the currently approved ELFs. 

The proposed Excess Loss Factors (ELFs) are necessary to maintain the aggregate expected balance between the retrospectively rated premium and the guaranteed cost premium. If the ELFs were not updated, there would be a natural slippage caused by inflation acting over time to increase the percentage of losses over any fixed loss limit.

The proposed ELFs also reflect the updated mix of injury types. These changes are not expected to have any significant impact on overall premium levels.