NCCI.Circular

Reading: National Council on Compensation Insurance, Circular CIF-2018-28, 06/21/2018. Filing Memorandum, Exhibits 1 — 7, 13.

Synopsis: This is the first of two articles on the NCCI Circular CIF-2018-28 reading. It covers the first part of the circular which is an overview of the NCCI approach to retrospective rating. The second part of the NCCI Circular reading is available at NCCI.InformationalExhibits.

Study Tips

To follow...

Estimated study time: 1 day (not including subsequent review time)

BattleTable

This is a new reading and due to the CAS no longer publishing past exams there are no prior exam questions available. At BattleActs we feel the main things you need to know (in rough order of importance) are:

Questions are held out from most recent exam. (Use these to have a fresh exam to practice on later. For links to these questions see Exam Summaries.)

reference	part (a)	part (b)	part (c)	part (d)
Currently no prior exam questions

Full BattleQuiz You must be logged in or this will not work.

In Plain English!

Overview

Alice: "The National Council on Compensation Insurance (NCCI) has a strict copyright policy on the materials they provide in the CAS study kit. What follows here is our interpretation of these materials for the purposes of helping you learn the content of NCCI Circular CIF-2018-28 to get you through the CAS exam. As such, we'll provide any figures you require but they may not match those available in the latest study kit or NCCI manual. Nor is there any guarantee this material exhaustively covers the circular. Lastly, please remember this material is for exam purposes only — you shouldn't use these wiki articles for work purposes!"

This is the first of two articles which constitute the NCCI Circular reading; part 2 is available here.

The NCCI Circular describes the NCCI approach to retrospective rating. It uses a newer methodology which improves the accuracy of the insurance charge. In particular, due to recent increases in computational power, the NCCI now offers real-time calculation of factors which negates the need for copious numbers of lookup tables. Since you can't (yet) access the real-time look-up in the exam, the NCCI also has a table of countrywide factors that is available in the study kit.

One of the important things to note is the terminology in the NCCI Circular is slightly different from what you've so far encountered in the Fisher readings. In particular, the term insurance charge is replaced by net aggregate loss factor. Make sure you pay close attention to the changes.

The NCCI revised its retrospective rating methodology primarily to revamp the tables used in their rating algorithm. The revision uses more recent data, removes some approximations that were used and increased the accuracy and fairness (equity) of the insurance charges both within a state and countrywide. Rather than producing many tables for the various state/hazard group combinations (see Robertson.HazardGroups for a quick refresher if needed), the NCCI has developed an online application which allows you to produce Aggregate Loss Factors (ALFs) on Demand. The ALFs on demand are produced after entering estimated claim count and severity distributions for the state/hazard group in question and can even handle interstate risks across multiple hazard groups.

In recognition that not everyone has permanent internet access, and that insurers may need time to implement the necessary IT/system changes, the NCCI provides the Table of Aggregate Loss Factors which replaces the previous tables of insurance charges. The table of aggregate loss factors is a countrywide alternative to the ALFs on demand.

Question: What are some of the benefits of using the table of aggregate loss factors over the previous table of net insurance charges?

Solution:

• The table of aggregate loss factors shares the methodology improvements of the ALFs on demand so are more accurate.
• It automatically accounts for claim size inflation over time .
• Removes the need for updates to hazard group differentials and the expected loss group ranges.

Question: What is a disadvantage of using the table of aggregate loss factors?

Solution:

• The table of aggregate loss factors is countrywide so doesn't reflect the state and hazard group severity distribution differences. (Alice: "The ALFs on demand do pick this up, so get online!")

Full BattleQuiz You must be logged in or this will not work.