An expense constant is a flat charge added to some commercial insurance premiums to help recover fixed policy issuance and servicing costs. In plain language, it is a set dollar amount used because even a small policy still costs money to issue, bill, and service.
Why insurers use it
Some expenses do not change much with exposure. A small workers compensation policy can still require:
- policy setup
- billing and notices
- audits
- service and renewal handling
If an insurer relied only on exposure-based premium, very small accounts might not generate enough premium to cover those fixed costs. The expense constant helps close that gap.
How it differs from similar pricing tools
An expense constant is not the same as:
- a minimum premium, which sets the lowest total premium allowed
- an expense loading, which is usually a broader rate component or percentage provision
- a premium load, which may be variable rather than flat
The expense constant is defined by its flat-dollar nature.
Practical example
A small contractor’s workers compensation policy has a manual premium of $350. The rating plan adds a $200 expense constant. Before other taxes or assessments, the adjusted premium becomes $550.