INTRODUCTION

Developing the American Association of Insurance Services (AAIS) Agricultural Output Program final rate involves two parts or steps. The first is the Normal Loss Basic Charge (sometimes called the small loss rate). It is the part of the rate that addresses minor (less than $5,000) losses. The second is the Basic Major Loss Rate. This part of the rate addresses larger losses (equal to or that exceed $5,000).

The Normal Loss Basic Charge is not calculated when the deductible is $5,000 or more.

A separate calculation must be made for each building limit, personal property limit, and stock limit.

Note: This requirement differs from the one on the COP, which does not require such separate calculations. This means a normal loss basic charge must be calculated separately for building, business personal property, and stock. It also requires that losses be separated by property type and prior year premium be divided by property type.

NORMAL LOSS BASIC CHARGE

The normal loss basic charge is an experience rating technique similar to the one used with liability coverage rating. It caps large losses at a certain amount but uses the full value of smaller losses. Numerous smaller losses have more impact than a single large loss. If the deductible for the next policy period is less than $5,000 (other than the deductible that applies to dwelling and household personal property), the Normal Loss Basic Charge is determined by the following steps:

Step 1. List the gross amount of each individual loss for at least the past three years.

Note: Additional years' experience can also be used. Loss amounts are gross. This means they are not reduced by applying any deductible.

Step 2. Each loss is capped at $5,000.

Step 3. Subtract the deductible to be used at renewal from each capped loss to determine net losses.

Step 4. Total the net losses.

Step 5. Multiply the total by a factor of 1.80.

Note: This is the total adjusted loss.

Step 6. Total the values for the same time periods as the losses that were gathered.

Step 7. Divide the result from step 5. by the result from step 6.

Step 8. The basic normal charge must fall within the Table A. normal loss range. If the charge is less than the minimum, it must be increased to the minimum. If it exceeds the maximum, it must be reduced to the maximum.

BASIC MAJOR LOSS RATE

Two distinct parts make up the Major Loss Rate. The first is the Basic Major Loss Load. It is based on the classification number that applies to the risk's primary operation. The second is the Deficiency Points. It is based on the risk's individual characteristics.

Major Loss Load

The classification table has three pages of eligible operations and occupancies. The classification group number is selected based on the risk’s primary operation. There may be more than one operation. In that case, the one used is the one that best represents the overall operation.

The Major Loss Load is in Table A. The classification group number in the classification table is used to determine the load.

Deficiency Points Rate

The Deficiency Point Characteristics Schedule has 13 deficiency categories, each considered separately. Deficiency points are assigned based on how much each risk deviates from perfection rather than from the average.

Category	Deficiency Point Characteristic	Deficiency Point Range
A.	Disaster exposure: Concentration of large values is important. An operation with nationwide exposures receives fewer points. Single location operations receive more points.	0–5,000
B.	Climatic hazards: Perfect risks are not in areas with hurricanes, tornadoes, or wildfires. More points are assigned based on the number and type of natural disasters to which the property is exposed.	0–750
C.	Special Occupancy Hazards: This category considers multiple occupancies, processing activities, storage issues, traffic, and exposures to major losses, such as fire, explosion, theft, and water damage.	0–5,000
D.	Lack of Private Protection: Perfect risks have sprinkler systems, fire and theft alarms, and even watchperson services. Extinguishing systems are in place and maintained regularly.	0–5,000
E.	Inadequate public protection: Perfect risks are in public protection class 1. More points are assigned as the public protection diminishes. This category considers the number and value of property located in each protection class.	0–5,000
F.	External Exposures: This category considers buildings or operations adjacent to the insured locations. It focuses on the adequacy of clear space and whether the exposures are close enough to affect the named insured’s location.	0–750
G.	Construction and values: This category addresses whether the values are in well-built buildings or concentrated in buildings of inferior quality or have major shortfalls and deficiencies.	0–1,500
H.	Combustibility/Susceptibility: This category addresses personal property exposures and features not normally considered with the classification.	0–1,500
I.	Specific insurance arrangements: This category addresses increases in automatic limits for some Additional Coverages or other coverages added.	0–1,500
J.	Transit: This category addresses exposures greater than what the classification contemplates. It also addresses any subrogation restrictions on goods in transit or bailment.	0–5,000
K.	Water damage: This category addresses risks with exposures in known flood zones. This is used only when flood coverage is provided.	0–5,000
L.	Earthquake: This category addresses risks with exposures in known earthquake-prone areas. This is used only when earthquake coverage is provided.	0–5,000
M.	Different deductibles: This category addresses deductibles that are lower than the standard for certain property or locations.	0–1,000

After each category’s point totals are assigned, they are added together.

The Deficiency Point charge is in Table C. It is based on the deficiency point table.

The Deficiency Point Charge is added to the Basic Major Loss Load to develop the Major Loss Load.

The Major Loss Load is added to the Normal Loss Basic Charge to develop the Property Final Factor (PFF) for the Buildings/and or Personal Property or to develop the Stock Final Factor (SFF) for stock.

FINAL FACTOR

The following tables provide charges and modifications that must be applied to develop the final rate:

Table D. Premium Modification Factor for Inflation Protection, Functional Replacement Cost, and Coinsurance
Table E. Deductible in excess of $5,000
Table F. Higher limits for Additional Property Coverages
Table G. Supplemental Property Coverages higher limits and expansions of coverages
Table H. Property Coverage Options–mainly agricultural products
Table I. Builders Risk Property, Computers, Specially Scheduled Property
Table J. Income Coverages
Table K. Crime Coverages

PREMIUM

The values (per $100 of value) are multiplied by the developed rate to obtain a final premium.