American Statistical Association (March, 1915). MOWBRAY, ALBERT H. "How Extensive a Payroll Exposure is Necessary to Give a Dependable Pure Premium," Ibid., Vol. I, pp. 24-31. "The Determination of Pure Premiums for Minor Classifications on which the Experience Data is Insufficient for Direct Estimate," Ibid., Vol. II, pp. 124-133. MAGOUN, W. N. "The Essential Factors in the Computation of the Cost of Workmen's Compensation," Ibid., Vol. I, pp. 173-189. OLIFIERS, EDWARD. "Statistics Necessary for Computing Net Compensation Rates," Ibid., Vol. II, pp. 202-207. SCATTERGOOD, C. E. "Cost Accounting in Casualty Insurance," Ibid., Vol. II, pp. 253-263. MADDRILL, JAMES D. "The Compensation Cost of Occupational Disease," Ibid., Vol. II, pp. 208-227. DOWNEY, E. H. "The Classification of Industries for Workmen's Compensation Insurance," Ibid., Vol. II, pp. 10-32. FISHER, ARNE. "Outline of a Method for Determining Basic Pure Premiums." Ibid, Vol. II, pp. 394-406. SCATTERGOOD, C. E. "The Synthesis of Rates for Work men's Compensation," Economic World, Jan. 8, 1916. Report on Workmen's Compensation Insurance of The Commission to Investigate Practices and Rates in Insurance. Boston (1915). Report of the Joint Special Recess Committee on Workmen's Compensation Rates and Accident Prevention, Boston (1917). Proceedings of the Joint Conference on Workmen's Compensation Rates. Insurance Department, State of New York, Albany (1915). CHAPTER XIX MERIT RATING' Since manual rates are average rates representing the average hazard of all plants in each classification of industry it is obvious that they do not necessarily reflect accurately the hazard of any particular plant. Conditions in some plants are superior to the normal for the industry while conditions in others are subnormal. The application of the manual rate to all plants within a classification should produce an equitable contribution from the industry to the general insurance fund but it would work injustice to the individual contributors. To measure comparative hazard within classifications and to distribute equitably the burden of premium payment among individual employers, systems of merit rating have been adopted. A merit rate is a rate on an individual risk which reflects the deviation of hazard of the risk from the average hazard of risks in the same classification. If the hazard is less than the average a discount from the manual rate is allowed; if greater, an additional charge is made; while risks of average hazard take the manual rate. Thus each policyholder contributes 'Merit rating was used to some extent in setting rates for employer's liability insurance, but it has been systematically developed only in connection with compensation insurance. The present chapters therefore deal with practice in the latter field. to the general fund an amount based on the relative hazard of the industry in which he is engaged and on the relative hazard of his plant as compared with the plants of other policyholders conducting the same type of business. Relative hazard is a measure of the probable loss cost to the insuring organization and is, therefore, a proper basis for rating. Bases for Merit Rating.-Loss cost in compensation insurance is dependent upon the frequency and gravity of industrial accidents and therefore merit rating is based on a consideration of industrial conditions affecting the rate of accidents and their seriousness. The application of merit rating requires that these conditions in each plant be weighed in their relation to the probable loss cost of the average plant and the result expressed in credits for superior, and in charges for inferior, conditions. Where conditions affecting accidents are capable of inspection this is accomplished through schedule rating. Where such underlying conditions are revealed only by the accident record of the plant experience rating is used. SCHEDULE RATING Definition. Schedule rating is a method of determining the rate of premium applicable to an individual plant by means of charges added to, and credits subtracted from, the manual rate; these charges and credits to be ascertained by an inspection of the visible characteristics of the risk.2 "This definition covers the method of schedule rating now in general use. Schedule rating might be applied by assuming a rate The Schedule. The first requirement of a system of schedule rating is a plan of operation. The plan now in general use is embodied in The Industrial Compensation Rating Schedule which was adopted by the First Conference on Schedule Rating on July 27, 1916. This schedule is a compilation of standards of safety for industrial plants to be used as a guide for inspecting and rating such plants for workmen's compensation insurance. A standard is set for practically every feature of a risk which affects the accident hazard and an appropriate modification of the manual rate is indicated for the presence or absence of standard conditions. Conformance to certain standards is recognized as super-normal and involves a credit or reduction of the rate, while lack of conformity to normal standards is penalized by a charge. In a few cases provision is made for both credits and charges. The scope of the schedule is best indicated by its various sections: 1. Buildings 2. Fire Hazard 4. Floor Openings 5. Wall Openings 6. Hoistway 7. Stairs 8. Elevated Runways and Platforms for a perfect plant, adding charges for defects in actual plants; or by assuming a rate for the poorest possible plant, giving credits for good points. The schedule used for rating coal mines is based on the assumption of a perfect mine. 9. Boilers-High Pressure 10. Pressure Apparatus II. Steam Engines、 12. Electrical Equipment 13. Explosive Hazard Charges 14. Acid Carboys 15. Travelling Crane 16. Elevator 17. Abrasive Wheel 18. Power Transmission Equipment 19. Welfare and Health 20. Machine Hazard 21. Machine Employee Ratio 22. Safety Organization, Inspection Service 23. Maintenance and Inspection Under each of these headings are grouped standards, rules, charges, and credits which enable the inspector and rater to arrive at proper modification of the manual rate for a given risk.3 Types of Hazard.—In the Industrial Schedule three types of hazard are recognized: (1) the catastrophe hazard, (2) the hazard incident to the operation of a plant and affecting all employees, and (3) the hazard incident to operation but to which only a limited number of employees are exposed at any one time. Catastrophe hazards, such as boiler explosions, fires, collapse of buildings, etc., affect all plants and all in 3 A specimen page from the schedule is given on page 244. |