GENERAL CIRCULAR LETTER 405 – APRIL 20, 1999
TO: Members of the Bureau FROM: Donna Knepper RE: Wisconsin Exception "Minimum-Minimum Premium" Rule The Bureau has been asked to recirculate the information released in General Circular Letter 361 dated March 10, 1993. The Minimum-Minimum Premium Rule was amended since then, but the examples still apply. "Over the years, the so-called "Minimum-Minimum
Premium" rule, found on Wisconsin Exception Page To understand the Exception, it is first necessary to review the
basic manual rule, specifically
The Exception on Wisconsin Page
- The Final Audit develops $10,000 in earned payroll. The final premium
is 10.000 X $10.00 divided by 100 or $1,000 plus the expense constant of
~~$160~~$180 for a total of~~$1,160~~$1,180. Neither minimum premium rule applies, as the audited premium exceeds the minimum.
- The Final Audit develops $5,000 in earned payroll. The calculated
premium is 5,000 X $10.00 divided by 100 or $500 plus the expense constant of
~~$160~~$180 for a total of $680 which is less than the minimum premium. The Wisconsin Exception refers to 20% of earned payroll or .20X $5,000 for a total of $1,000. Since $1,000 is greater than the policy minimum shown of $850, the Wisconsin Exception does not apply, and the $850 Minimum is applicable under Basic Manual Rule F., paragraph 5.
- The Final Audit develops $3,000 in earned payroll. The calculated
premium is 3,000 X $10.00 divided by 100 or $300 plus the expense constant for a total of
~~$460~~$480. The Wisconsin Exception calculation is 20% of $3,000 or $600, which is less than the $850 policy premium. Therefore, the Exception applies and the minimum premium charged is $600.
- The Final Audit develops no earned payroll. Since 20% of 0 is
nothing, the Wisconsin Exception obviously applies, and since the minimum charge under the
Exception is the Expense Constant, the actual minimum charged would currently be
~~$160~~$180.
Example 4 is, by far, the most common situation, as a number of risks, primarily contractors, often buy policies they are not required to purchased as they have no employees, solely to obtain a Certificate of Insurance. Since there is no loss exposure in this situation, the Office of the Commissioner of Insurance believes that the Expense Constant is adequate payment to the carrier for issuing the policy. Similar arguments are used for employers with very small payroll. Any questions regarding this Wisconsin Exception should be forwarded to this Bureau. Member carriers are asked to circulate this bulletin to all company employees responsible for the determination of final earned worker’s compensation policy premium on Wisconsin exposures." Remember, in any of the above examples, if the policy is canceled mid-term, the Minimum Premium Rule applies only if it produces a lower premium than would be produced under Rules X-B. or X-C. |