ISO.Rating

Reading: Insurance Services Office, Inc., Commercial General Liability Experience and Schedule Rating Plan, 07/14/2014.

Synopsis: To follow...

Study Tips

In the exam you may be given the information you need from the manual directly in the exam question or you may be given a supplement consisting of pages from the manual. The information you'll be given will likely be the various tables rather than the actual rules, so your goal is to know how to apply the rules quickly and concisely which includes knowing where to look up the necessary information.

Since the numbers used in the schedule change from time to time, we're going to always provide you with the numbers or excerpts of tables that you'll need to solve a problem. So if you're following along with the latest study kit from the CAS you may not have the same figures. However, you should make sure you can get to the same location in the study kit so you can be efficient with your time in the exam.

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

BattleTable

Based on past exams, 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)
E (2018.Fall #11)	Experience Modification - calculate	Schedule Credit - assess reasonability
E (2017.Fall #9)	Experience Modification - calculate premium
E (2015.Fall #9)	Experience Modification - calculate factor
E (2014.Fall #8)	Ultimate Loss - adjust using experience
E (2013.Fall #8)	Experience Modification - reverse engineer
E (2012.Fall #14)	Large Losses - calculate minimum number

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

In Plain English!

Overview

The ISO manual is used to experience and schedule rate Commercial General Liability risks. Policies may be written on a per-occurrence basis which covers claims that occur during the period the policy is effective. Or, policies may be written on a claims-made basis which covers any claim reported during the effective period irrespective of when the accident occurred.

Eligibility (Rules 2.E & 2.F)

To be eligible to use the experience rating in the ISO manual, a risk must have a credibility of at least 0.07 as determined using Table 16 (found in Rule 16).

To use Table 16 you need to be given or calculate the Company Subject Loss Cost (Expected Losses). We'll go into the calculation later in this wiki article.

To be eligible to use the schedule rating in the ISO manual, a risk must have a credibility of at least 0.03 as determined using Table 16.

Schedule Rating (Rule 9)

A schedule rating modification may be determined to account for risk characteristics that are not reflected in the policyholder's underlying experience. For example, if risk has recently moved to a new and improved premises this is not reflected in their past experience and so may merit a schedule rating credit.

There are six categories of schedule modifications in the ISO CGL manual. You should memorize the categories and range of modifications shown in the table below.

Risk Characteristic	Description	Range of Modifications
Location	Exposure Inside and Outside	± 5% inside, ± 5% outside
Premises	Care & Condition	± 10%
Equipment	Type, Care & Condition	± 10%
Classification	Pecularities	± 10%
Employees	Selection, Training, Supervision, Experience	± 6%
Cooperation	Safety Program & Medical Facilities	± 2% each

An important part of the schedule rating process is the maximum credit or debit which limits the sum of the individual category schedule debits and credits to ± 25%.

When answering a question on schedule rating you should determine which of the categories fit the given scenario and assign a credit or debit within the range as you feel is appropriate. More than one answer will likely be acceptable so you should make sure you justify your answer. Lastly, don't forget to apply the maximum credit or debit cap if needed.

Experience Rating

Experience Used (Rule 4)

The experience period ends at least six months before the rating date, so the latest policy year is always incomplete and isn't used. The experience period should consist of the latest three full policy years of experience, or at least one complete policy year if data is unavailable.

Determination of Experience Modification (Rule 5)

Rule 5 is the main part of the ISO CGL manual. It outlines how to calculate the experience modification factor in three different scenarios. Regardless of the scenario, the experience modification is defined as [math]\mbox{Experience Modification}=\frac{AER-EER}{EER}\cdot\mbox{Credibility}[/math], where AER is the actual experience ratio and EER is the expected experience ratio.

To begin to use the experience modification formula we need to step back and examine some definitions.

The ISO CGL manual uses basic limits to determine loss costs for experience rating. While rare to be tested on the definition of basic limits, you should know this means the following (Rule 5A):

• $100,000 combined single limit per-occurrence for bodily injury and property damage,
• $100,000 per fire for fire damages,
• $5,000 per person for medical expenses,
• $100,000 per person or organization for personal or advertising injuries,
• Annual aggregate limit of $200,000 for Products/Completed Operations and all other coverages.

Our first definition is the Company Subject Loss Cost (CSLC). This is the total basic limits company loss costs , i.e. the basic limits expected losses including Allocated Loss Adjustment Expenses but excluding any other expenses. This total comes from summing over all of the experience years and sublines of business. The two common sublines are Premises/Operations and Products.

Other Rules

Company Expense Variation (Rule 8)

If the Expected Loss Ratio (ELR) for the class of risks differs from the actual expected loss ratio for the risk then multiply the manual premium by the experience modification factor and the Expense Variation Factor (EVF), where [math]\mathrm{EVF} =\frac{\mbox{ELR underlying for the risk class}}{\mbox{Actual ELR for the risk}}[/math].

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