Sliding Scale Dividend Plans Definition
In workers comp insurance, Sliding Scale Dividend Plans are established to return a portion of the premium to the policyholder if the losses are better than expected and a dividend is declared. This is a type of Loss-Sensitive Policy. Loss sensitive policies have been know to dramatically increase premiums in certain cases.
In a sliding scale plan, the size of the dividend slides up or down according to the loss experience (incurred losses/premium paid). This amount is returned to the insured business after the policy expires.
Sliding Scale Dividends are very state-specific. Dividends are not guaranteed and are paid based on the ratio the final audited premium has to the total incurred losses of the insured for the policy period.
These plans an be variable.
A policy year dividend depends on your earned premium and your loss ratio during that year. The dividend grows as your premium increases and your loss ratio declines. The formula might look something like this:
Dividend = final audited premium / loss ratio
NCCI has created its own table for dividend plans. The table is behind a paywall. Therefore, I cannot provide it here.
Each state has very specific rules on this type of plan.
Also Read: What Is A Guaranteed Cost Program In Workers Compensation?
©J&L Risk Management Inc Copyright Notice
