Term Of The Day – Experience Account
Experience Account refers to a provision in an insurance or reinsurance contract that, using some function of such policy provisions such as premium, insurer charges, losses paid or payable under the contract, subrogation proceeds, and interest rates, forms the basis of an explicit or notional fund that can then be used to calculate the amount due under an Additional Premium Provision.
Additional premium provisions, while rare in workers comp, are usually part of a finite insurance agreement. Finite insurance agreements have come under much scrutiny as some of the finite policies are skirting on the edge of not being a truly insurable risk.
The EA can sometimes involve another insurance policy kicking in when reaching some other level of funds. A retro policy is a hybrid situation that would be similar to this type of account. I have not see one that actually had an interest rate condition in a workers comp policy.
I am sure there are alternative workers comp arrangements that do have an Experience account in them.
Update – I have seen some of the offshore captives arranges for Workers Comp have modified experience accounts in them. I actually saw an example of one at the CICA Conference in 2014.
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