The Bismarck tribune. [volume] (Bismarck, N.D.) 1916-current, 1931-07-20
Clues Advantages of Ne,v
Scheme for State Bureau

IcllaDle, from IL standpoint OF &C.
curacy. than any Of the other used
factors. and is certainly not to be
compared with the lack of accuracy
developed In the past through the ap-
pication Of the actual loss experience
OF the various classifications for rate
making. The many, many instances
OF small payroll exposure, and the
very generous allowances for certain
severe types of injury are enough to
require no further argument.
The s of the modifier developed
by the application Of the NORMAL
pure premium disclosed by the Fund
as q whole, keeps each classification
in intimate touch with the whole
scheme. The EXCESS losses, how
ever, can not be eliminated. They
must be taken into consideration. Just
showing them into a pile or dumping
them into the general surplus hopper,
as has been suggested at times, would
make rates purely arbitrary, though,
perhaps stable. so we take into con-
sideration the EXCESS losses Of each
classification. but only to the extent
Of 400, the remaining 900 being rep
resented by the EXCESS loss expert
ence Of the Fund as a whole. In the
past the full total Of losses, normal
and excess, were left as q charge
against the classification; hence, sud-
den and violent fluctuations were
quite the usual and ordifiary thing, if
experience was to govern at all.
Even In states where the payroll ex-
pcsure Is thousands of times as much
as ours, and where q highly accurate
total accident record Il developed in
one or two years by reason Of the
fact that the total number Of INJURIES
runs to 10000 and 100000, even there
fluctuations, unfortunate "runs' of
bad accidents, occur. New York, for
instance, a state in which accidents
run to several hundred thousand a
year, we find a record showing that
in n year death losses ran $40
above the normal. Hence, methods
of "distributing' excess losses over
long periods Of time are employed.
That distribution Is now made avail
able by the use Of the plan adopted,
the pure premium represented by 40%
of the EXCESS pure premium Of the
classification being added to that
represented by 500 Of the Excess pure
premium Of the Fund as q whole. AS
indicated In q previous illustration
the result, in q certain unfortunate"
Classification, the new rate developed
to only $1.73 as against $2.09 whic,
would result from strict application of
the terms Of the law.
May we say again that v with
the small total exposure, the COM
small annual total Of &C.
cidents, and the large number of
small classifications and small en-
ployers, the first application Of the
plan demonstrated beyond doubt that
1t will result in equitable distribution
Of excess losses, that it will, there
fore, stabilize the rate structure, and
it is likely to advance, by is to
years, the time when we may say.
some degree of certainty, that
the rates charged, whether high or
low. are correct.
We do not pretend to say that this
may be said this year. Repeating a
recently made, 1T was i'm
possible to follow through on all
:lassifications at once" BY that is
meant that the rate. indicated for
some Of the classifications by the new
system was either too high or too low
10 Justify making the complete
at once !
In our studies We found that no
actuarial expert dissented seriously
wi views as to the amount re-
by way of reserves to insure
That being true, we r in
position to start from this point and
work pretty close to an actual cost"
,ass. There was really no way of do
ng it under the old system, at least
lot for some time. and I doubt very
seriously if it could have been done
lnder that system, or lack Of system,
wen after we reached a total Of 10O,-,