A minimum premium charge is the least amount that an insurance company will charge for writing a one-year policy.
The minimum includes everything. So you calculate the class code premium, add the 25% assigned risk surcharge, and add the expense constant. If they all add up to less than minimum, then the carrier charges the minimum.
The minimum premium calculation: class rate X minimum premium multiplier + expense constant.
The minimum premium multiplier (MPM) and expense constant are updated with each annual advisory rate filing and can be found in the Technical Supplement, Indiana Summary, part IV. Summary of Miscellaneous Changes.
Effective Date |
Class Rate |
MP Multiplier |
Expense Constant |
MP Max |
1/1/2006 |
$x.xx |
275 |
250 |
$1,000 |
1/1/2007 |
$x.xx |
285 |
250 |
$1,000 |
1/1/2008 |
$x.xx |
295 |
250 |
$1,000 |
1/1/2009 |
$x.xx |
305 |
250 |
$1,000 |
1/1/2010 |
$x.xx |
301 |
250 |
$1,000 |
1/1/2011 |
$x.xx |
315 |
250 |
$1,000 |
1/1/2012 |
$x.xx |
315 |
250 |
$1,000 |
1/1/2013 |
$x.xx |
315 |
250 |
$1,250 |
1/1/2014 |
$x.xx |
315 |
250 |
$1,250 |
1/1/2015 |
$x.xx |
315 |
250 |
$1,500 |
1/1/2016 |
$x.xx |
315 |
160 |
$1,500 |
1/1/2017 |
$x.xx |
315 |
160 |
$1,500 |
1/1/2018 |
$x.xx |
315 |
160 |
$1,500 |
Note that some minimum premium policies can be canceled pro-rata. Refer to Basic Manual Rule 3.A.3, pages R23.
One way to determine the MPM would be to look at the class codes on rate pages where the maximum minimum premium (MMP) is not equal to $1500. Subtract the expense constant ($160 as shown under Misc Values on page S9) from the MMP, and divide by the rate. So, for example, the 2018 minimum premium for code 2157 is $1,077. Subtract $160 to get $915, and divide by the rate of 2.91 to back into the MPM of 315.
Three Year Fixed Rate Policy
Minimum premium for such a policy is defined the Basic Manual Rule 3.B.2., page R35, old Rule XI.D, page R-49. Using Indiana 1/1/99 advisory rate filing information and code 8810, here's an example calculation.
Assume a policy to cover one corporate officer. Her payroll is at the executive officer minimum of $13,364. The premium for one year is only $27 ($13,363 / 100 x .20 = $27), so in this case you would just use the minimum premium of $261. Rule 3.B.2.a.(2), page R36, (old Rule XI.D) states that you multiply the one year policy minimum by 3, so $261 x 3 = $783. Now, you can either subtract two expense constants or one expense constant from the total, depending if the insured pays 100% of the premium up front, or pays in installments over the three years.
If in advance, then you subtract two expense constants, so $783 - (220 x 2) = $343. This is the minimum premium for the entire three year policy period.
If in installments, then you subtract one expense constant, so $783 - 220 = $563. This is the minimum premium for the entire three year policy period. If installments were set up for three payments (once each year), then the carrier would bill the insured $188 per year ($583 / 3 = $188).
Note: Basic Manual Rule 3.B.2.a.(2)., (old Rules XI.D and XI.E) site the one or two expense constant calculation. They state the same thing, but use different terminology. For example, 3.B.2.a.(2). states,
- Two expense constants if the deposit premium is paid in advance, or
- One expense constant if the deposit premium is paid in installments
In both sections, only one expense constant will be applied when the premium is fully paid in advance.
Note to 1/1/2000 Filing
When the filing was prepared, the overall rate change for Industry Group 3 was a couple of percentage points away from its target rate change, so NCCI actuaries manually adjusted the rate for the 3 codes below by one penny up or down. Unfortunately, the minimum premium listed on the rates pages used the unadjusted rate as the basis instead of the adjusted one. As a result, each of those minimum premiums are off by $2 (two are $2 too high and one is $2 too low). A carrier could justify using either the minimum premium printed on the rate pages or the minimum premium using the formula shown above.
Essentially, either premium amount is justifiable since the entire filing was approved. So, a carrier could choose which minimum premium it desires to use for these 3 codes for this year, based upon how its system is set up to capture the minimum premium.
<><><> Class Code |
Rate Page MP |
Formula MP |
8810 |
$277 |
$275 |
8820 |
$271 |
$273 |
8832 | $273 |
$275 |