The D ratio is a workers’ compensation actuarial metric comparing certain small losses and a discounted value of larger losses against expected total losses for premium rating.
Mechanics
In many systems, smaller claims can be counted at full value while larger claims are discounted to reduce distortion from a few high-severity events. The formula supports comparative rate fairness across employers.
Rating and underwriting impact
- Loss trend and frequency feed into the ratio trend.
- An adverse D ratio can increase the experience modifier and therefore payroll-rate premiums.
- Underwriters use the ratio trend with credibility standards, especially for small employers with limited history.
Claims logic
Claims severity classification affects whether a loss is full-count or discounted in the D ratio calculation. Misclassification or late claim reporting can shift the rating outcome and affect future renewal pricing.
Practical example
An employer with several small injuries and one severe claim may see the severe claim discounted in the D ratio model. That can stabilize premium impact versus straight sum-of-loss methods.