Method and apparatus for insurance risk management

• US 7,516,079 B2
• Filed: 10/16/2002
• Issued: 04/07/2009
• Est. Priority Date: 10/16/2001
• Status: Expired due to Fees

• Current Assignee: Andrew Grant Harrison, Lance Harrison
• Original Assignee: Andrew Grant Harrison, Lance Harrison
• Inventors: Harrison, Andrew Grant, Harrison, Lance
• Primary Examiner(s): O'Connor; Gerald J.
• Assistant Examiner(s): RANGREJ, SHEETAL
• Application Number:
  US10/272,673
• Publication Number:
  US 20030078817A1
• Time in Patent Office: 2,365 Days
• Field of Search: None
• US Class Current: 705/4
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A methodology for calculating insurance premium comprising receiving a set of insurance information from a user including a revenue of the organization, a self insured retention (SIR) of the organization, and a loss limit acceptable to the organization to determine a standard premium for the organization. Once the standard premium of the organization is determined, the methodology illustrates how to determine a regular premium based on the standard premium and the SIR of the organization. Finally, using the described methodology one can determine an excess premium based on the loss limit acceptable to the organization, the regular premium and the self insured retention of the organization. The method provides a powerful tool to manage various risks of an organization and at the same time control various factors determining the insurance premium of the organization.

Claims

1. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of calculating an insurance premium for an organization, the method comprising:

receiving a set of insurance information from a user including a revenue of the organization, a self insured retention (SIR) of the organization, and a loss limit acceptable to the organization;

determining a standard premium based on the revenue of the organization;

determining a regular premium based on the standard premium and the SIR of the organization;

determining an experience rated limit based on the regular premium; and

determining an excess premium based on the loss limit acceptable to the organization, the regular premium and the SIR of the organization;

wherein determining the standard premium includes;

receiving a revenue weighting factor from the user;

multiplying an actual revenue of the organization by the revenue weighting factor to get a weighted revenue of the organization; and

determining the standard premium by using the equation;

std_prem=a1*√

{square root over (weighted_revenue)}

where std_prem is the standard premium,

a1 is a first constant representing a limit to premium multiplier, and

weighted_revenue is the weighted revenue of the organization.

2. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of as described in claim 1, wherein the limit to premium multiplier has an approximate value of 20.

3. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of calculating an insurance premium for an organization, the method comprising:

receiving a set of insurance information from a user including a revenue of the organization, a self insured retention (SIR) of the organization, and a loss limit acceptable to the organization;

determining a standard premium based on the revenue of the organization;

determining a regular premium based on the standard premium and the SIR of the organization;

determining an experience rated limit based on the regular premium; and

determining an excess premium based on the loss limit acceptable to the organization, the regular premium and the SIR of the organization,

wherein the standard premium and the revenue of the organization are related by the equation;

std_prem=a1*√

{square root over (revenue)}

where std_prem is the standard premium, and

revenue is the revenue of the organization;

the regular premium and the standard premium are related by the equation;

$\mathrm{reg\_prem}\equiv <br><br>\mathrm{std\_prem}*\left(\frac{\left(1-\log <br><br>\left(\mathrm{SIR}/\mathrm{a2}\right)\right)}{\log <br><br>\left(\mathrm{loss\_limit}/\mathrm{a2}\right)}\right)$

where reg_prem is the regular premium,

loss_limit is the loss limit acceptable to the organization, and

a2 is a second constant with a value of 1,000,000 used to convert a value in dollars into a value in millions of dollars;

the experience rated limit and the regular premium are related by the equation;

exp_rated_limit=a1*reg_prem

where exp_rated_limit is the experience rated limit; and

the excess premium, the regular premium, the loss limit and the SIR are related by the equation;

$\mathrm{ex\_prem}\equiv <br><br>\left(\mathrm{reg\_prem}\right)*\left(\frac{\log <br><br>\left(\mathrm{loss\_limit}/\mathrm{a2}\right)}{\log <br><br>\left(\mathrm{exp\_rated}<br><br>\mathrm{\_limit}/\mathrm{a2}\right)}-\mathrm{a3}\right)$

where ex_prem is the excess premium, and

a3 is a third constant with a value of 1.

4. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of as described in claim 3, further including determining a necessary revenue for an organization to generate a targeted standard premium, where the necessary revenue and the targeted standard premium are related by the equation:

necessary_revenue=(target_std_prem²/a4)

where necessary_revenue is the necessary revenue for the organization,

target_std_premium is the targeted standard premium, and

a 4 is a fourth constant with an approximate value of 400.

5. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of claim 3, further comprising:

determining an excess limit, where the excess limit, the experience rated limit and the loss limit are related by the equation;

excess_limit=loss_limit−

(SIR+exp_rated_limit)

where excess_limit is the excess limit.

6. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of claim 3, further comprising:

receiving a first retrospective loss for the organization;

receiving a set of retrospective factors to determine a first retrospective premium based at least in part on the first retrospective loss, said retrospective factors including a retrospective base percentage specifying a percentage of the regular premium used to calculate the first retrospective premium, a retrospective term specifying a number of years that the first retrospective premium is to be applied, and a retrospective calibrator specifying a maximum increase in the regular premium due to the first retrospective premium; and

determining the first retrospective premium.

7. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of claim 6 wherein, determining the first retrospective premium comprising:

(1) determining a retention debit, where the retention debit, the loss limit and the SIR are related by the equation;

$\mathrm{retention\_debit}=\frac{\log <br><br>\left(\mathrm{SIR}/\mathrm{a2}\right)}{\log <br><br>\left(\mathrm{loss\_limit}/\mathrm{a2}\right)}$

where retention_debit is the retention debit;

(2) determining a limit factor, where the limit factor and the retention debit are related by the equation;

limit_factor=a3−

retention_debit

where limit_factor is the limit factor;

(3) determining an adjusted sum of the SIR and the experience rated limit (adj_SIR_ERL), where if the sum of the experience rated limit and the SIR is less than the loss limit, the adj_SIR_ERL equals the sum of the experience rated limit and the SIR, otherwise the maximum loss limit equals the loss limit;

(4) determining an experience rated loss, where if the first retrospective loss is greater than the adj_SIR_ERL, the experience rated loss equals the adj_SIR_ERL, otherwise the experience rated loss equals the first retrospective loss;

(5) determining a base retrospective factor, where the base retrospective factor, the experience rated loss and the maximum loss limit are related by the equation;

$\mathrm{base\_retro}<br><br>\mathrm{\_factor}=\frac{\log <br><br>\left(\mathrm{exp\_rated}<br><br>\mathrm{\_loss}/\mathrm{a2}\right)}{\log <br><br>\left(\mathrm{adj\_SIR}<br><br>\mathrm{\_ERL}/\mathrm{a2}\right)}$

where base_retro_factor is the base retrospective factor, and

exp_rated_loss is the experience rated loss;

(6) determining a loss factor, where the loss factor, the base retrospective factor and the retention debit are related by;

loss_factor=base_retro_factor−

retention_debit

where loss_factor is the loss factor;

(7) determining a retrospective premium factor, where the retrospective premium factor, the retrospective calibrator, the loss factor and the limit factor are related by the equation;

$\mathrm{retro\_prem}<br><br>\mathrm{\_factor}=\left(\mathrm{retro\_calibrator}\right)*\left(\frac{\mathrm{loss\_factor}}{\mathrm{limit\_factor}}\right)$

where retro_prem_factor is the retrospective premium factor,

retro_calibrator is the retrospective calibrator; and

(8) determining the retrospective premium, where the retrospective premium, the regular premium and the retrospective base percentage are related by the equation;

retro_premium=reg_prem*retro_base_percent*retro_prem_factor

where retro_prem is the retrospective premium, and

retro_base_percent is the retrospective base percentage.

8. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of claim 7 further comprising:

determining an adjusted excess premium, where the adjusted excess premium, the regular premium, the retroactive premium, the loss limit and the adj_SIR_ERL are related by the following relation;

$\mathrm{adj\_excess}<br><br>\mathrm{\_prem}=\left(\mathrm{reg\_prem}+\mathrm{retro\_premium}\right)*\left(\frac{\log <br><br>\left(\mathrm{loss\_limit}/\mathrm{a2}\right)}{\log <br><br>\left(\mathrm{adj\_SIR}<br><br>\mathrm{\_ERL}/\mathrm{a2}\right)}-\mathrm{a3}\right)$

where, adj_excess_prem is the adjusted excess premium.

9. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of claim 8 further comprising:

determining a total premium of an organization as a sum of the regular premium, the adjusted excess premium and the retrospective premium.

10. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of claim 9 further including:

setting up a retention trust with a balance equal to or greater than the sum of the experience rated limit and the SIR;

the retention trust providing a first type of insurance to the organization; and

the organization making periodic payments to the retention trust in an amount equal to the total premium.

11. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of claim 10, wherein the retention trust is setup in a corporate form similar to one of a trust, a captive insurer, a rent-a-captive insurer, a protected cell insurer and a segregated cell insurer.

12. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of claim 11, wherein the retention trust is set up as a controlled entity that is financially not consolidated with the organization.

13. A computer-readable medium including computer-executable instructions stored thereon for causing a computer to perform a method of claim 9, wherein the organization enters into a contract to pay the total insurance premium to a third party insurer and the third party insurer indemnifies the organization for a plurality of losses for a first period as specified in the contract.

14. A system for determining an insurance premium of an organization employing a processor, a memory, a display, and an input mechanism, the system comprising a program stored on the memory and executable on the processor to:

receive a set of insurance information from a user including a revenue of the organization, a self insured retention (SIR) of the organization, and a loss limit acceptable to the organization;

determine a standard premium based on the revenue of the organization;

determine a regular premium based on the standard premium and the SIR of the organization;

determine an experience rated limit based on the regular premium; and

determine an excess premium based on the loss limit acceptable to the organization, the regular premium and the SIR of the organization;

wherein to determine the standard premium, the program stored on the memory is executable by the processor to;

receive a revenue weighting factor from the user;

multiply an actual revenue of the organization by the revenue weighting factor to get a weighted revenue of the organization; and

determine the standard premium by using the equation;

std_prem=a1*√

{square root over (weighted_revenue)}

where std_prem is the standard premium,

a1 is a first constant representing a limit to premium multiplier, and

weighted_revenue is the weighted revenue of the organization.

15. A system for determining an insurance premium of an organization comprising:

a processor;

a memory;

an input mechanism adapted to receive a set of insurance information from a user including a revenue of the organization, a self insured retention (SIR) of the organization, and a loss limit acceptable to the organization;

a computer program stored on the memory and adapted to execute on the processor to determine a standard premium based on the revenue of the organization, determine a regular premium based on the standard premium and the SIR of the organization, determine an experience rated limit based on the regular premium, to determine an excess premium based on the loss limit acceptable to the organization, the regular premium and the SIR of the organization, wherein to determine the standard premium, the program stored on the memory is executable by the processor to;

receive a revenue weighting factor from the user;

to multiply an actual revenue of the organization by the revenue weighting factor to get a weighted revenue of the organization; and

to determine the standard premium by using the equation;

std_prem=a1*√

{square root over (weighted_revenue)}

where std_prem is the standard premium,

a1 is a first constant representing a limit to premium multiplier, and

weighted_revenue is the weighted revenue of the organization; and

an output device adapted to output the standard premium and the excess premium to the user on a user readable medium.

16. A computer program embodied on at least one computer readable medium including computer-executable instructions comprising:

first software for receiving a set of insurance information from a user including a revenue of the organization, a self insured retention (SIR) of the organization, and a loss limit acceptable to the organization;

second software for determining a standard premium based on the revenue of the organization;

third software for determining a regular premium based on the standard premium and the SIR of the organization;

fourth software for determining an experience rated limit based on the regular premium;

fifth software for determining an excess premium based on the loss limit acceptable to the organization, the regular premium and the SIR of the organization;

sixth software to receive a revenue weighting factor from the user;

seventh software to multiply an actual revenue of the organization by the revenue weighting factor to get a weighted revenue of the organization; and

eighth software to determine the standard premium by using the equation;

std_prem=a1*√

{square root over (weighted_revenue)}

where std_prem is the standard premium,

a1 is a first constant representing a limit to premium multiplier, and

weighted_revenue is the weighted revenue of the organization,

wherein the first, second, third, fourth, fifth, sixth, seventh and eighth software are recorded on the computer readable medium.