Term Of The Day – Excess Losses
In the Experience Modification Factor formula, Excess Losses are the amount of any single claim that is more than the cut-off point for inclusion as a primary loss. The NCCI experience rating formula uses the threshold of $15,000. The threshold varies in the formulas used by other rating bureaus.
The Loss (beyond $15,000) is usually discounted by a factor to reduce its impact so as to not penalize an insured for a few large losses versus numerous losses over the same time period.
The Primary Losses (Up to $15,000) peg to the Experience Modification Factor very heavily.
The Excess Loss figures appear as Ae in the above formula box.
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