General Contractors Insurance, Ltd. (GCI) has developed an experience rated formula to be used in calculating a member’s premium for each year. It is primarily based on a member’s individual loss history. The following is a brief outline.
The intent of the formula is that each member pays a premium to fund for most of its ultimate losses while allowing for risk sharing and risk shifting amongst the entire membership primarily for shock losses.
To develop an individual member's premium, each member’s previous five-year loss history is collected and the data is then trended and developed by GCI’s actuarial service provider. The actuary produces what it believes a member’s predictable losses will be, plus what should be allocated for shock losses (losses above $100,000). This becomes the member’s loss fund.
Next, the operating costs of the program, such as excess reinsurance, fronting costs, claims service, and administration, are also calculated and allocated to each member.
Finally, a member's loss fund and operating costs are added together, producing a member’s annual premium.
Because each member is expected to pay their own losses, subject to certain formula limits, a member can be billed additional premium up to a predetermined amount should their losses exceed expected levels.