Glossary

The expense load is an amount the insurer adds to an insurance premium to cover business expenses and the contingencies, including cost of capital, shown mathematically as follows. Premium = Claims + Expenses + Profit loading. Profit loading is usually expressed in factor "times" or "percentage" of expected claims and business expenses or shown mathematically as the following. Premium target = (1+ r) X; r = profit loading factor expressed in percentage; X = sum of claims losses expected and other business expenses – administrative costs, commissions, overhead cost

The expense ratio is the percentage of premium used to pay all of the costs of acquiring, writing, and servicing insurance and reinsurance. There are two methodologies to measure the expense ratio: a trade basis, which is when the expense is divided by written premium, and on a statutory basis, which is when the expense is divided by earned premium. Most typically, the ratio is calculated using written premium. Expense ratios are an integral part of retrospective rating basic premiums.

Expense reserve refers to a liability item for expenses incurred but not paid.

Experience in an insurance context is the loss record of an insured or of a class of coverage. It is also the classified statistics of events connected with insurance, of outgo or of income, actual or estimated.

An experience account is an account into which premiums are deposited, which is established as part of a finite risk insurance program. There is no risk sharing with the funds of any other of the insurer's clients in an experience account (i.e., they contain only a single insured's reserve fund that has been established for a specific program). Therefore, balances reflect an individual insured's actual loss experience under a finite program. The account earns investment income, and at the end of the policy term (usually several years), any principal and interest that has not been paid out as losses is returned to the insured.

Experience modification is the actual process by which the factor developed through experience rating is applied to the premium of the insured.

An experience modifier is a factor developed by measuring the difference between the insured's actual past experience and the expected or actual experience of the class. This factor may be either a debit or credit and, therefore, will increase or decrease the standard premium in response to past loss experience. When applied to the manual premium, the experience modification produces a premium that is more representative of the actual loss experience of an insured. An employer with average experience has a modifier of 1.0 and would pay the manual premium. Employers with poorer loss experience would have modifiers greater than 1.00 and would pay more than manual premium. Those with good experience would have modifiers below 1.00 and pay less than manual premium.

Experience rating as respects workers compensation is the method in which the actual loss experience of the insured is compared to the loss experience that is normally expected by other risks in the insured's rating class. The resulting experience modification factor is then applied to the premium of the insured. In other casualty lines, the actual loss experience of the insured is generally compared to the actual loss experience of risks in the same industry to again develop a modifying factor for application to the insured's premium.

An experience refund under a reinsurance agreement is that part of the profits that is returned to the cedent after recognition of contingency reserves, loss carryforward, and loss carryback provisions.

The experimental medical procedures exclusion found within the majority of physicians professional liability insurance policies precludes coverage for claims arising from the administration of experimental medical procedures. Insurers often exclude coverage for experimental procedures since they have not yet been proven safe and effective and, therefore, involve higher-than-normal risks. Because underwriters do not usually price their policies to incorporate such risks, claims resulting from experimental procedures are frequently excluded. Some insurers will agree to remove this exclusion, especially in cases where the insured physician performs a significant number of experimental or unapproved (e.g., by the US Food and Drug Administration, among other regulatory bodies) procedures. In such instances, insurers will remove the exclusion in return for additional premium.