Each Wheels Insurance, Ltd. member's premium is individually developed through the use of an actuarially determined loss forecast. It is primarily based on a member’s expected 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 individual members’ premium, each member’s previous five-year loss history is collected and the data is then trended and developed by Wheels Insurance, Ltd.’s actuarial service provider. The actuary then 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, and claims service, are calculated for each member.
Finally, a member's loss fund and operating costs are added together, producing a member’s annual premium.
In addition to premium charges, a member can be assessed up to a predetermined amount if their expected losses exceed expected levels.