328
`
`NOTES on EXPOSURE AND PREMIUM BASES
`
`-
`
`III. COVERAGE TO Ass,oREn F0-R Hrs LIABILITY FOR INJURIES 1-o
`rm: GENERAL PUBLIC.
`Manufacturers‘ and Contractors’.
`Owners’. Landlords’ and Tenants’.
`Elevator.
`'
`-
`'
`.Tearos.-
`Automobile.
`Airplane.
`Product.
`Protective.
`
`PF"3""‘.3’!'4".i'*E'-"’!>3’!"'
`
`These exoess limits will be designated by a and E: respe2ctiV6lY- The
`
`.- The injuries covered under Public Liability Insurance are those
`sustained by the public while on and/or Dff.1:he_prem_i.ses from
`accidents arising out of conditions for which -the assured is re.
`sponslble. The hazards are peculiar ;to each of the sevaral lines of
`-insurance falling under this division. With respect to one element;
`underlying the hazard. however,
`these lines of insurance are
`similar. That -element
`is the evaluation standard used in re-
`ducing the severity of the injury to losses. In all Public lines the
`monetary measure of the injuries is determined by voluntary
`agreement or by court procedure. The attitude of the community
`and of the legal profession is an important factor in deciding
`whether there will be many requests for settlement of trivial, no-
`fiability or even fraudulent cases, whether there will be voluntary
`’settlements,- or whether there will be lawsuits.
`If thelast alterna-
`tive is chosen, the jury selected from the community will determine
`the money value of the injury and any liberal or conservative
`viewpoint of the judges construing the law will be reflected in the
`losses. The attitude of the Community. the Bar, and the Court
`presumably will be redacted equally in all classifications, if ‘not in
`all lines. No attempt is made to account for variations from these
`sources in selecting the exposure medium. These variations in
`losses are assumed to occur by districts and are provided for by
`establishing territorial differentials wherever there is a measurable
`deviation based on adequate data.
`There is another factor underlying‘ the evaluation standard which
`requires difierent treatment as it is not subject to terfitorifll
`differentials. This factor arises out of the maximum limits im-
`posed on the amount per injured and the amotmt Del‘ accident-
`
`"-
`
`i
`'
`
`Page 000018
`
`

`
` g
`
`NOTES on nxrosrma AND PREMIUM nasns
`
`329
`
`lines of insurance and also the classifications within lines are
`divided into a few groups according to the excess hazards. It is
`assumed that within each group the aggregate losses for any classi-
`fication when evaluated with a/b limits will have a. fixed relativity
`to the aggregate ‘losses when evaluated under standard (5/10)
`limits. No efiort is made to reflect variations due to difierent
`limits in selecting the exposure medium. The ratesare quoted for
`unit exposure on a standard limit evaluation basis.
`If other limits
`are desired. the basic rate is modified by applying to the standard
`limit rate the excess factor corresponding to the desired limits
`which is taken from a table constructed for each group of excess
`hazard. The evaluation standard including excess limits has been
`eliminated in discussing premiuin basesfor these lines of insurance.
`
`1. MANUFACTURERS’ AND CONTRAXCTORS’
`Insummcze.
`
`PUBLIC LIABILITY
`
`
`
`;
`
`The hazard in this line arises from the contact of the public
`with the criticalconditions of the assur-ed’s premises and opera-
`tions. The problem here is to select an exposure medium which
`varies withhthecritioal
`and the number of the public
`who. by entering and passing. are subjected to the assured's
`critical conditions. Some of the exposure media that might "be
`given passing consideration are:
`-
`1. Number of Public Adniissions.
`2. Payroll.
`3. Man-Year.
`4.
`-Area and Frontage.
`5. Value of Product.
`
`,_It would be expected
`' 1. Number of Public Admissions.
`that the number of injuries and their cost would vary with
`the number of the public who enter or pass the premises or the
`place oi operations and that therefore this number would
`make a. good medium for measuring the exposure. An over-
`powering objection is that there is generally no record "avail-
`able and that it is quite impractical, if not impossible; to get
`one.
`
`'2. Payroll. Presumably the number of the public desiring
`admission to the manu.facturer’s and contractor's ‘premises and
`place of operations. within a given classification, varies with
`
`Page 000019
`
`

`
` 330
`
`NOTES on" Exsosusa AND PREMIUM asses
`
`the size of the plants or operations as roughly measured by
`the number of employees or the payroll. Payroll exposure
`1'35P0I1€1S to the decrease or increase of the aggregate losses
`brought on by periods of depression and prosperity in in-
`dustry. It has the practical advantage of being based upon
`long established records necessary for other purposes, so that
`it may be readily obtained and checked. The use of payroll
`records adds to efliciency for, as many risks are insured for
`and ‘Public "Liability by" the- same carrier, the
`sarue audit may be used for each of these lines;
`
`3. Man-Year. A man-.yea.r exposure.11as.the same merits
`that have just been ascribed to payroll as regards responsive.
`ness to the variation in losses. It is not as practical as payrolls
`for it is necessary to establish a special record for measuring
`this exposure. Under present conditions at least this Special
`record could not he used for determining Compensation
`exposure.
`
`4. Area and Frontage. An area and frontage mediom._
`area of assured's premises and length of premises adjoining
`public ways-—might be used for measuring exposure in Mano.
`facturers' Public Liability Insurance. It would be expected
`that the number of employees, the payroll, and the size "(area
`and frontage) of the plant would vary in about the same ratio.
`The area and frontage medium would not respond to varia-
`tions due to depressions and prosperity. This medium_ ‘is
`practical in application as the exposure of manufacturing-_
`plants on this basis could be accurately determined "with-
`reesonsble efiort.
`It would not serve the dual p'ur_p'e_sejo£ _
`measuring Compensation exposure at the same time.
`The area and frontage basis is poorly adapted to measuring
`exposure for Contractors’ Public Liability Insurance. Area
`and frontage exposure does not vary and it is fitted to measure
`only exposures which are continuous and constant. The
`exposure for a. location under Contractors’ Public Liability is
`variable. It begins below average, increases to above average.
`and then decreases. often tapering off to almost zero.
`
`‘As the value of the product of a
`5. Value‘-o_f.Prur1uct.
`given g establishment reflects the activity" it
`
`
`
`_—
`
`
`
`Page 000020
`
`

`
`¥
`
`I
`;
`i
`'
`
`-
`
`.-
`'l;
`-
`
`1
`
`NOTES ON EXPOSURE AND PREMIUM BASES
`
`331
`
`seems not unreasonable to expect that this product value
`might serve as a medium for measuring Public Liability
`hazard. This exposure medium, as already stated under
`Compensation, would require some rearrangement of classi-
`fications, it‘ would vary with the total losses under industrial
`depressions and prosperity, and it could be obtained readily
`from available records and checked.
`-
`For Contractors’ Public Liability the equivalent of the
`value-of-product exposure medium would be the amount of
`the contract. Within each classification this may be expected
`to vary roughly with the payroll or with the man-year ex-
`posure. A rearrangement of classifications, taking into con-
`sideration the extent to which the cost of material is included
`in the contract. would be required. Exposure measured"
`through this medium could be: readily obtained from avail—'
`able records and checked.
`'
`
`2. OWNERS’, L.mm.oRDs’ AND TnNi_iNrs' PUBLIC LIABILITY
`INSURANCE.
`
`‘
`
`Owners’. Landlords’ and Tenants’ Public Liability Insumnce
`is the term used for public liability insurance on assured's
`premises, other than Manufacturers’ and Contractors‘; and
`Elevator Public Liability Insurance. As in Manufacturers’
`‘fand Contractors’
`Insurance the hazard arises out of the
`contact of
`the public with the critical conditions of the
`premises. Presumably the classifications have been refined -
`so that critical conditions are similar and uniform within the
`classification. The variations in conditions from classification
`to classification are so large, however, that no one exposure
`medium is adapted to all. The exposure media that will be
`considered are:
`'
`
`Arm-.and Frontage.
`_Num’_her of Admissions.
`Receipts. Admission Charges.
`Seat-Year.
`Sales.
`Rentals.
`
`Payroll.
`Unit-Year.
`
`9°:'*‘E3°F‘t""?’.‘°£"
`
`Page 000021
`
`

`
`...,.H,.
`
`'
`
`..._
`".
`._
`.. 7" '
`
`v
`
`_
`
`_
`
`..
`._l.4
`.__.}-Ieégl
`-"_-_':_Ԥl'l3i
`
`'
`
`v
`
`'
`
`332
`
`NOTES on nxposomi AND rnemum 33.335
`
`1. Area and Frontage. This is a dual basis of premium to
`account -separately for the hazard which may be associated
`with the area of the premises and that which is related to the
`frontage. along public ways.
`If the nature of the premises
`is such that there is- no frontage, then the hazard them is we
`and the_'dual exposure becomes a single exposui-e'baged on
`area alone. Presumably the accidents vary with the m.it5ca1
`conditions and the number of the public coming in contact
`with them. Within the same classification the accidents
`probably vary somewhat directly with the inner area and the
`linear frontage on public ways. On this assumption. area and
`frontage exposure may be considered to vary dimcay with the
`hazard. This exposure medium is better adapted far hazards
`that are continuous and uniform, or, if varying by geaggnsl
`that average about the same from year to year. It is applied
`to classifications covering buildings of all kinds. signboards,
`country estates. cemeteries, etc.. where there is lime variation
`in critical conditions or in the number of people exposed year
`after year. The impossibility of concealing exposure can this
`basis and the facility with which it may be accurately de-
`termined give it an important practical advantage.
`
`2. Number of Public Admissions. The hazard due to the
`number of the public subjected to the conditions of the" .
`assured's premises varies directly with the number
`to the premises. Considered from this viewpoin_t_
`is a better measure of the exposure than area. It cloesnot
`account directly for any outside frontage hazard and is.a;dapt-
`able only where the frontage hazard is negligible or hearse
`fixed ratio to the area hazard within the classification. It is re» .
`
`s-pensive to changes in hazard due to depressions-and periods
`of prosperity.
`The number of admissions can be secured in a practical way
`in only a few classifications. At present this basis is used only
`for baseball parks.
`It might be used in amusement parks,
`theatres, concert halls. bathing pavilions, restaurants. skating
`rinks. dance‘ halls, and public museums with turnstiles or
`admission charges.
`
`3. Receipts, Admission Charges. The receipts vary with
`the number of admissions and thus with the hazard. Like the
`
`¢
`
`I L
`
`Page 000022
`
`

`
`i;
`'
`
`‘
`
`NOTES on sxrosuns nun PREMIUM BASES
`
`333
`
`number of admissions. this exposure medium reflects depres-
`sion and prosperity. In classifications where there is no great
`range in prices this exposure medium might do very well.
`Where losses do not vary with the admission charge or where
`they may vary inversely to the eharge, the medium is not so
`well adapted as the number of admissions. This basis is
`practical for certain classifications where the amount of
`receipts is more readily ascertained than the number of ad-
`missions and where the receipts are subject to check.
`It is
`11565. at present, in concert halls. stadiums. bathing P3-V'i]i011S.
`skating rinks, and dance halls. It might be used also in base-
`ball parks.
`
`‘
`
`In certain classifications that have a con-
`4- Seat-Year.
`tinuous exposure throughout the year, or, if variable, a con-
`sistent average hazard from year to year, the number of seats
`forms a reasonably good measure of exposure. This exposure
`medium does not respond to a temporary decrease or increase
`in hazard like the number of admissions or admission receipts.
`The basis is used for theatres and moving picture houses
`having regular shows where the number of people exposed
`during the year bears a reasonably constant ratio to the
`number of seats. Conceivably it might be used for oom~
`mereial baseball parks and concert halls but it would not give
`I‘ much responsiveness to losses. ior there is a large variation in
`the number ofpersons exposed within these classifications, at
`least as these are constitutedat the present time. The ex:
`posure on this basis may be readily determined and cannot be
`concealed for fraudulent purposes.
`
`.5. Sales. The total receipts from sales might possibly be
`used as a measure of exposure with some of the O. L. 83 T.
`classifications. This medium would require a readjustment of
`some of the present classifications to make it applicable, and
`to some it could not be applied at all.
`In classifications like
`retail stores of all kinds (When properly subdivided), restau-
`rants, hotels, etc.. this premium basis might be used. The
`public liability hazard would be expected to vary with the
`number of patrons or purchases and these in turn with the
`amounts purchased; This exposure is readily ascertained for
`classifications involving sales.
`
`Page 000023
`
`

`
`334
`
`NOTES ON EXPOSURE AND PREMIUM BASES
`
`6. Rentals. As the area is a fair measure of the hazard in
`connection with buildings, it would seem that the rentals of a
`building might be used as an exposure medium for buildings
`where all space is leased. The use of this medium would
`require some readjustments in those classifications where it is
`applicable, as the better buildings, which may be expected to
`have the higher rentals, would have the lesser critical con-
`ditions and consequently a smaller hazard. This exposure
`basis would be practical for only a limited number of building
`classifications.
`
`7. Payroll. The risks of some of the O. L. & T. classifica-
`tions have payrolls large enough to be reasonably stable. The
`payrolls of such risks would vary with the size of the risk
`when this is measured by other than payroll standards, and
`might be expected to be responsive to the losses. In cla,55j__
`fications like stores, hotels, restaurants, etc.. with possibly a
`few subdivisions, the payrolls would vary reasonably with the
`number of the public coming in contact with the critical con.
`ditions and might be used as an exposure medium.
`
`a.
`
`8. Unit-Year. There are premises that are so nearly
`identical or that have so small a hazard per unit that for
`practical purposes all are considered alike. The exposure
`basis used is the unit-year, which means a flat charge per unit
`per year. This medium of exposure is simple and practical.
`1 It generally applies to things where the total hazard is small;
`This basis is used at the present time for automatic vending
`machines, bowling alleys, canoes, tennis courts, dogs, where
`these are additional hazards to insured premises.
`Miscellaneous. There are certain classifications in which
`
`the hazard varies so widely within the class that it is impossible
`to select any practical medium as a reasonable measure of the
`hazard involved.
`Items coming under this designation are
`usually considered individually and a. flat charge is given after
`the factors unrierlying the hazard have been considered in
`each individual case. Such flat charges apply to parades,
`pageants, races, celebrations, etc.
`
`.The preceding exposure media for O. L. & T. Liability
`Insurance may be divided into two divisions according to
`
`[,__
`
`l l l2
`
`,
`
`Page 000024
`
`

`
`NOTES ON EXPOSURE AND PREMIUM BASES
`
`335
`
`they measure the exposure prospectively or re-
`whether
`trospectively. Area and frontage,
`seats, and unit—Ye31'5
`measure the exposure prospectively, while the nlunbef Of
`admissions, admission charges. receipts, and rentals measure
`it retrospectively.
`
`3. ELEVATOR PUBLIC LIABiLn-Y INSURANCE.
`
`The hazard covered in Elevator Public Liability Insurance
`arises out of the contact of the publicpwith the critical con-
`ditions of the elevator. Presumably this hazard varies some-
`what jointly with the critical conditions and the number Of
`public passengers. The hazard also varies with the amount
`of use of the elevator and the efliciency of the operator. The
`latter,
`though probably one of the major factors affecting
`accidents, is not directly considered in selecting the PTBTD-l”-In
`basis. Operators are either considered unfit and rejected 01'
`considered qualified and accepted ‘without further gradation.
`The elevators within classifications are graded to some extent-
`through merit rating for special safety devices. Through
`proper equipment of elevators and selection of operators it is
`assumed that the critical conditions are approximately the
`same for individual elevators of a. given classification. The
`possible exposure media. are jreary limited.
`
`C
`
`1. Number of Passengers. Use of the number of elevator
`..
`’ passengers"-as an
`mediiirn would give a.
`reflecting continuity of use, and to a. limited extent conges-
`tion, for the hazard in congestion increases in a larger degree
`than the increase in passengers. Whatever merit-' the medium
`may have in responsiveness to hazard is quite offset by the
`impracticability of getting an accurate measure of the‘ number
`of passengers in elevators generally.
`
`2. Elevator-Year. The elevator-year exposure medium
`does not reflect the number of passengers carried, continuity
`of use, capacity of elevator. average load, congestion, or the
`eflicienoy of the operator.
`It assumes that within a- given
`classification, elevators are equipped approximately equally
`"and average about the same year after year in the passengers
`carried. This basis is practical and it is in universal use at the
`present time for measuring the elevator exposure.
`
`Page 000025
`
`

`
`
`
`336
`
`NOTES ON EXPOSURE AND PREMIUM BASES
`
`It is conceivable that in the modern large building the total
`elevator hazard might be measured by the factors and con-
`ditions used by building engineers to determine the number,
`th_e capacity, and the i0C£i.lSI01'l of the elevators. From these
`conditions an exposure for the building independent. of the
`
`4. Terms’ PUBLIC LIABILITY INSURANCE.
`_ Some of the critical conditions contributing to the hazard
`covered in Teams’ Public Liability Insurance are:
`1. Traffic congestion.
`2. Nature of the operations.
`'3. Day or night operations.
`4. Accessibility to public.
`5. Eificiency of driver.
`6. Demeanor of teams.
`These are not all independent. The first four are inter-
`related and some would consider the fifth and sixth as inter-
`related. Variations in hazard for the first may be accounted
`for by territorial differentials and for the second and third by '
`classifications. The fourth. fifth and sixth are assumed to be
`equal for dififerent assureds of the same class. There is only
`one exposure medium that has been considered practical for
`application to Tearns' generally.
`Tes.m-Year. This medium does not respond to any varia-
`tion of hazard due to continuity of use during the year or the
`- amount of daily use. Itassumes that within classifications
`and territories these average about the same. It does not
`respond to diiferences in‘ individual drivers "aside from the
`group differences reflected in classification experience. The
`exposure medium is simple and its magnitude is readily
`
`I
`
`No other practical medium has been evolved. Mileage,
`team-day, or team-hour "media while responsive to certain
`variations in hazard are obviously impractical. ‘Driver pay-
`rolls might possibly} be used in a few "classifications where
`-. risks have a large number of teams and drivers. Receipts
`- might serve as a basis for risks of a trucking nature. All these
`media however are impractical for general application 130
`Teams’.
`
`
`
`Page 000026
`
`

`
`II]n..
`_o
`
`if
`
`NOTES ON EXPOSURE AND PREMIUM BASES
`
`337
`
`5. AUTOMOBILE PUBLIC LIABILITY INSURANCE.
`
`Some of the critical conditions that contribute to the hazard
`covered by Automobile Public‘ Liability Insurance or that
`cause deviations in this hazard are:
`1. The car—age, condition, etc.
`Highways—road beds, curves, visibility, etc.
`‘ Traflic density.
`Laws, regulations, and their enforcement.
`Efficiency of driver—age, experience, habits,
`ments, etc.
`Mileage.
`Speed.
`Weather conditions.
`Seasonal use of car.
`
`impair-
`
`
`
`E99934?‘-‘F"!‘“*F°!°
`
`10. Day and/or night use of car. ‘
`These are not to be considered a complete list, nor are they
`to be considered as independent of one another. Too little is
`known as yet about them to appraise the importance of each.
`From a casual survey, however, it would appear that
`(2),
`(3), and (4) are subject to treatment, if necessary, by terri-
`torial differentials. Any appreciable differences in (1) ' can
`be corrected through classification of cars. The degree to
`which (5) affects the hazard" is not definitely known. It is
`,- probably one of the most important factors eriumerated. It
`'
`is generally recognized that the extremes in age, lack of self-
`control, and definite iinpairinents disqualify a driver. The
`efiect of the variation in hazard of accepted drivers due to the
`range of these qualities within accepted limits is not sufficiently
`known to be oondered in determining exposure. The intro-
`duction of experience rating is an approach to recognizing
`these differences. It is generally accepted that hazards would
`vary approximately with the mileage, other conditions being
`the sarne. The extent to which the (7); (8), (Q). and (10) con-
`tribute to the hazard is unknown.
`I
`Among the oonceivable exposure media these might be
`considered:
`
`1. Car—Year.
`2. Mileage.
`3. Car-Hour.
`
`4. Fuel-Consumption.
`5. Payroll.
`'
`
`Page 000027
`
`

`
`338
`
`NOTES on axrosusn AND PREMIUM BASES
`
`1. Car-Year. This premium basis does not refiect the con-
`tinuity of use or the total use of the car. Obviously, other con-
`ditions being equal. the hazard will vary with the total mileage
`of the car. The assumption underlying this basis is that, with
`proper classification of cars. the differences in the hazard are
`not large enough to warrant introducing a more involved
`exposure medium. The merit of this medium is its simplicity
`and definiteness in measurement which make it difiicult to
`impose fraudulent exposures.
`A variation of the car-year unit might be a car-life in which
`a car would be insured for life at a definitely fixed amount
`which would be incurred at the beginning, though not neces-
`sarily paid in one payment. Conceivably this would serve to
`promote care and safety as the long use of cars would mean
`insurance at low cost. It is also possible that such a plan would
`be adverse to public welfare by keeping old and unsafe insured-
`for-life cars on the highways. This premium basis probably
`would not appeal to an installment buying age.
`It would also
`fall heavily on car owners who lost their cars early.
`2.- Mileage. The mileage exposure medium is superior to
`the car-year medium in yielding an exposure that varies with
`the hazard, as it responds more to the actual usage of the car.
`The devices and records necessary for the introduction of this
`medium make it impractical under present conditions.
`3. Car-Hour. A method that would measure exposure by
`the number of hoursthe car was operated, _i. e., with the motor.
`running, would yield a variation for useof the car, though
`probably not so responsive as mileage. This medium, how-
`ever, is even less practical than mileage.
`4. Fuel-Consumption. The quantity of fuel consumed as
`an exposure medium would refleot a variation inthe use of the
`car under similar road conditions. It would. "however, penalize
`the car on countryroads as cornparedwith the car on pavements
`whereas the hazards are just the reverse. Like the two pre-
`ceding exposure media this would require such an accounting
`system and other devices that it becomes impractical under
`present conditions.
`
`W
`
`,
`
`5. Payroll. Use of driver payroll as an exposure basis for
`assureadswhere several drivers use a variable number of cars
`
`1__a
`
`Page 000028
`
`

`
`NOTES ON EXPOSURE AND PREMIUM BASES
`
`339
`
`responds roughly to the usage of the cars, as wages are paid
`only for the drivers necessary to keep the cars in use. This
`basis is somewhat akin to a driver-year basis. There are a few
`classifications where assureds have several drivers for which
`this is practical.
`
`This discussion of automobile exposure pmedia has been
`directed to private passenger and commercial cars.
`If the
`Passenger hazard of public automobiles is considered,
`the
`capacity of the car becomes an important factor. As possible
`exposure media for the passenger hazard of public automo-
`biles mimber of passengers, passenger-mile, and receipts from
`fares should be considered.
`
`The introduction of a. mileage, car-hour, or fuel-consumption.
`exposure into rate making would require the prior development
`of experience on these media. The car-year is the only one of
`the enumerated media which measures the exposure pro-
`spectively,
`the others require a final adjustment which
`would be determined retrospectively.
`
`,6. Arnpmnn Poauo LIABILITY Insunsnoa.
`
`In this line of public liability insurance, as in Automobile
`Public Liability. there ezgists a. natural division of the hazard
`into passengers -and the general public. The hazard of the
`passengers assumes a. greater relative importance than in
`automobile insurance. Among the more important critical
`conditions contributing to the hazard are:
`I
`- 1. Plantrrtypel. condition," etc.
`2. Use of plane.
`_
`3. Capacity of plane.
`_
`4. Weather conditions.
`5. Topography of country.
`6. Efliciency of pilot.
`It is hardly to be expected that in this early stage of aviation
`the available records would be adequate to permit a proper
`appraisal of these factors. Of these conditions, (1). (2), and
`possibly (3) may be considered subject to treatment through
`refined classifications. Conditions (4) and (5) might be
`recognized to some extent by territorial differentials. The
`variations in hazard due to them might possibly be somewhat
`
`Page 000029
`
`

`
`.__....I
`
`340
`
`NOTES ON EXPOSURE AND PREMIUM BASES
`
`equalized through regulations. The distances covered by
`planes obviously decreases the effectiveness of
`territorial
`differentials. Condition (6), which is probably the most
`important of all,
`is not considered after pilots have been
`approved.
`
`The possible exposure media that will be considered are:
`
`In using this medium for exposure it is
`1. Plane-Year.
`assumed that within the classifications the hazard of the planes
`will average about the same over the period of a year. This
`medium does not respond to variations in the use of the ma-
`chine. Accidents presumably vary somewhat with the extent
`of use of the machine. This medium is simple in application
`and quite practical.
`
`(la) Mileage. These media are in
`(8.) Flying-Hour,
`2.
`some respects similar. Both reflect the use of the machine
`and probably are more responsive to the losses than the plane-
`year. They are not as simple in application as the plane-year
`though they are not as impractical as the corresponding bases
`for automobile exposure.
`
`_3. Number of Flights. Should experience reveal that the
`hazard connected with the takeoff and climb of a flight and
`the descent and landing is considerably greater than that
`during the intervening period,
`then the number of flights
`might be more responsive to the losses and a better medium
`for measuring exposure than either of the preceding media.
`In simplicity this ranks below the plane—yea.r but above either
`fiying—ho1.u' or mileage media.
`
`(c) Fare
`4. (a) Passenger-Hour, Cb) Passenge1"—Mile,
`Receipts. These media, which are somewhat related, are
`responsive to the public passenger hazard.
`‘They do not
`respond directly to the hazard of the general public. Although
`not as simple in application as the plane-year, they are not
`impracticable, in view of the records available.
`5. Number of Passengers. Should the conditions referred
`to under medium (3) prevail, then the number of passengers
`carried would be more responsive to the public passenger
`losses and a better medium for measuring exposure than
`passenger-hour, passenger-mile, or fare receipts. This medium
`
`Page 000030
`
`

`
`NOTES ON EXPOSURE AND PREMIUM BASES
`
`is not responsive to the hazard of the general public.
`simplicity of application it ranks with fare receipts.
`
`341
`
`In
`
`7. Pnonucr PUBLIC LIABILITY INSURANCE.‘
`
`¢
`
`,.
`"
`
`Product Public Liability Insurance covers the liability _
`of manufacturers for accidents to the public, arising out of
`their products. The critical conditions consist in defects in
`the products, including packing.
`If the products have been
`divided into homogenous classifications it may be expected
`that
`the critical conditions are somewhat uniformly dis-
`tributed. These exposure media will be considered:
`1. Quantity of product.
`2. Units of product.
`3. Sales.
`
`1. Quantity of Product. The hazards within a. homo-
`geneous class may be considered to vary with the volume on
`the assumption of a uiiiforrn distribution of critical conditions.
`This quantity exposure medium is probably the best basis
`in its responsiveness to the hazard. It is not as readily as-
`certained however as the cost or sales receipts of the products.
`
`In respo'nsi\'reness to hazard this
`2. Units of Product.
`exposure medium stands between quantity of product and
`sales receipts. It does not reflect variation in hazard due to
`different sizes of the units within the same classification. The
`measure of the exposure on this basis for most classifications is
`not as readily ascertained as that based on the quantity or
`the value of the, product.
`
`3. Sales. An exposure expressed in the medium of receipts
`from-Ii sales would vary approximately with the hazard, for
`there is a direct relation between sales receipts and volume.
`If the classifications contained wide variations,
`the high-
`prieed as compared with low-priced goods would be penalized,
`for it would be expected that the more costly articles would
`be the better prepared and the less hazardous. The basis,
`however,
`is quite practical, as accurate sales records are
`essential to sound administration and are found in every line
`of business.
`
`ii"
`1
`'
`
`u
`
`I
`
`Page 000031
`
`

`
`342
`
`NOTES ON rzxrosous AND PREMIUM BASES
`
`8. Pnorcc-rrvn Posuc LIABILITY.
`
`This coverage is given to owners, landlords, tenants, and
`contractors for their liability for injuries to the pubfic on
`premises or operations which have been leased of contracted to
`others. The critical conditions and injurable objects are
`generally the same here as under the direct public liability
`of the lessees or sub-contractors.
`It is assumed that this
`secondary liability bears a constant ratio to direct liability
`and it follows that the exposure media should be the game as
`under direct
`liability. This is the procedure followed at
`present for Landlords‘ Protective Liability and Tenants‘
`Protective Liability.
`In Owners‘ or Contractors’ Protective Public Liability
`a different exposure medium is used. As the coverage extends
`to injuries in connection with all material as well as the actual
`building operations it is believed that the use of the total
`cost of labor, material. and equipment as exposure medium
`gives greater responsiveness to losses.
`It is also recognized
`that this is in part a defense policy against attack on the
`owner or contractor in case the financial position of the party
`assuming direct liability precludes his paying a large verdict.
`This defense element of the hazard decreases as the financial
`position of the party assuming direct liability increases. or
`generally as the size of the contract increases. The ratio of
`the total hazard under protective liability to the total hazard
`under primary liability__decreases with an increase in the
`size of the contract. As there is no practical expression which
`_ represents such a function, an approximation is made through
`graded charges, i. e. by charging one rate for a cost up to a
`fixed amount, then a smaller rate up to another fixed amount.
`and thereafter a still smaller rate. "This is equivalent to de-
`oroasing the magnitude of the exposure by a fixed ratio in
`the second and third intervals. Such graded charges also
`might be applied to other media, e. g. payroll.
`
`IV. Covaaaos son LIABILITY sop. PROFESSIONAL Acrs.
`
`_ 1. Physicians and Surgeons, Dentists, Optometrists, and
`Druggists.
`2. Hospitals.
`Under this form of insurance the injuries of clients arising out
`
`‘I
`
`.:
`
`Page 000032
`
`

`
`
`
`--
`
`_
`
`_
`_-_'_'.
`‘'
`
`NOTES on ex:-osuae arm rnamum nasas
`
`343
`
`of the professional acts of the assured are covered. The critical
`conditions consist in defects in the material, errors in treatment,
`negligence. 01’ 13~C1i Of ability of the assured. It is obviously most
`difficult. if not impossible, to get an exposure medium responsive
`toall th