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Premium Discount Program 1/1/96

Premium Discount is optional for a carrier to apply to each insured in Indiana and mandatory in most other states.;

Premium Discount is optional for a carrier to apply to each insured in Indiana and mandatory in most other states. Reference Basic Manual, Appendix A, page AA1, which contains the State Reference Chart Premium Discount Tables. Footnote "a" says that "Premium Discounts are not mandatory in Indiana."

Premium Discount does not apply to assigned risk business.

The program uses a table to calculate a discount based on premium size. The table is part of the Miscellaneous Values found behind the state rate pages in the Basic Manual.

Effective 1/1/96, Indiana began using a revised Premium Discount Program. The program tailors manual premium to reflect equitable expense provisions by size of policy. The premium discounts for Type A carriers (formerly the stock carrier column) differ from Type B carriers (formerly the non-stock carrier column) only in the selection of production expense provisions. A carrier would select to use Type A or Type B discounts, based on its incurred production expense schedule, rather than how they are capitalized.

The new table uses "production expense provisions" in lieu of the traditional stock and non-stock choices for columns A & B. Production expense provisions include commissions and other acquisition expenses reported in the carrier's NAIC annual statement. Other acquisition expenses include: maintenance of branch offices, writing of policies, billing and collection of premiums, auditing records of delinquent agents, and service to agents.The "production expense provisions" item varies on the type of production system, either the agent system or direct writer system.

Since the new program reduced the amount of discount (increased premium) than the previous program, the 1/1/96 rate filing accounted for this by offsetting or decreasing the advisory rates by 2.9%, so that on average, the same net premium for Indiana on the whole is collected.

Premium Discount Table - prior to 1/1/96
Premium
Stock
Non-stock
First $5,000
0.0%
0.0%
Next $95,000
10.9%
3.5%
Next $400,000
12.6%
5.0%
Over $500,000
14.4%
7.0%

Premium Discount Table - effective 1/1/96
Premium
Type A
Type B
First $10,000
0.0%
0.0%
Next $190,000
9.1%
5.1%
Next $1,550,000
11.3%
6.5%
Over $1,750,000
12.3%
7.5%

Premium Discount History
Premium discounts in Indiana were made as part of an individual risk deviation filing, using the "Indiana Rating Deviation Filing" application form, effective July 1, 1954. The discount would automatically be approved if the standard premium discount table in the Basic Manual was used. This is why use of premium discount in Indiana is not mandatory and can be applied on an individual risk basis. The premium discount tables have been updated and approved as item filings with the Indiana DOI through the years. And the application form is no longer used. However, the Premium Discount Program remains a non-mandatory program in Indiana.

Premium Discount Endorsement (WC 00 04 06 A)
This endorsement is flexible, so the look can be different from what you see in the Policy Forms Manual. Since premium discount tables are advisory in Indiana, a carrier my use its own premium discount table if it filed such table with the DOI (in Indiana or other states). The notes at the bottom of the page of the endorsement in the Policy Forms Manual gives you an idea of the customizing one can do when issuing the endorsement.

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The material in this document has been prepared and shared for informational purposes only and should not be relied upon as legal advice on any particular situation.