Premium in Indiana is calculated per the updated algorithm contained in Item Filing B-1407 "Catastrophe Provisions Miscellaneous Values, Rules and Statistical Codes" effective for new and renewal business on September 1, 2008.
Algorithm - Filing History
1. 07/01/2000: The original algorithm was created in Item Filing B-1351 for voluntary (regular) policies effective July 1, 2000 and Item Filing RM-01-IN-00 for assigned risk policies (which includes a step for the 25% assigned risk surcharge) also effective July 1, 2000.
2. 09/21/2001: The algorithm was updated to include a line for the Indiana Second Injury Fund Surcharge which was approved by the Indiana Department of Insurance on September 21, 2001. The item filing name is "Second Injury Fund Surcharge."
3. 12/20/2002: The algorithm was updated to include a line for "Terrorism Risk Insurance Act of 2002-Certified Losses." The filing is effective December 20, 2002 for voluntary policies, and January 1, 2003 for assigned risk policies.
4. 01/01/2005: The algorithm was updated to include a line for "Domestic Terrorism, Earthquakes, and Catastrophic Industrial Accident (DTEC)" The filing is effective January 1, 2005.
5. 09/01/2008: The algorithm was updated to establish two categories of Miscellaneous values to address losses resulting from "Terrorism" and "Catastrophe (other than Certified Acts of Terrorism)"
6. 12/31/09: The algorithm was updated to remove reference to the expired Coal Mine Premium Transition Credit Factor.
7. 01/01/2011: The algorithm for assigned risk business was updated in the advisory rate filing. The assigned risk surcharge was revised to charge employers a 25% surcharge on only that portion of premium in excess of $2,500.
Here's a step-by-step explanation of calculating premium that will help you understand the algorithm.
1. For each class code: payroll X rate / 100 = estimated manual premium
2. Add all class code estimated annual premium to get total manual premium
3. Add to manual premium all premium items subject to experience rating to get total subject premium
“Subject premium” is the audited manual premium. It does not include premium discount, any surcharges, schedule rating, etc. We use it to determine eligibility for experience rating. It doesn’t mean much if you are trying to determine the actual policy premiums paid for that term.
Premium subject to experience rating:
Employer's liability increased limits
Indiana deductible or co-insurance premium credit or debit
Waiver of subrogation
4. Multiply total subject premium by the experience modification to get total modified premium
5. Add premium not subject to experience rating to get total standard premium
Premium not subject to experience rating:
Assigned risk surcharge (25% "for policies with premium in excess of $2,500")
Aircraft passenger seat surcharge
6. Add other premium items to get estimated annual premium
Premium discount (applied to standard premium defined Basic Manual Rule 3.A.19, page R31, old Rule VII.C.1, p R31)
Coal mine disease charge
Terrorism and catastrophe surcharges
Total estimated annual premium now calculated!
7. Add the following non-premium item to get total amount due
Second Injury Fund Surcharge
Note: The Basic Manual and the 1996 Workers Compensation Statistical Plan Manual contain different definitions of "standard premium."
The Basic Manual Rule 3.A.20, page R33 (old Rule VII.C.1, page R31):
Standard Premium is the premium before the application of the premium discount. It is the state premium determined on the basis of:
· Authorized rates
· Disease loadings
· Nonratable elements
· Aircraft seat surcharges
· Premium for increased limits of liability
· Experience rating modification
· Applicable schedule rating modification
· Minimum premiums
Total Standard Premium is the total premium for all states covered by the policy excluding expense constant and any disease charge subject to the Federal Coal Mine Health & Safety Act before the application of the premium discount.
Statistical Plan - 2008 Edition, Rule 3-P Total Standard Premium:
"Report the total premium charged for the policy, excluding the approved expense constant, premium discount, and any special payments to the states that are assessed on total premium writings or total losses incurred."
The Basic Manual definition is contained within the Premium Discount rule and is used to determine the premium subject to premium discount. The Statistical Plan Manual instructs what premium to report (for ratemaking purposes).
Also refer to the Basic Manual, Indiana Miscellaneous page which contains the Premium Algorithm effective 7/1/2000, which originated under Item Filing B-1351, with subsequent updates.