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📋 '''Expense constant''' is a flat dollar charge added to an [[Definition:Insurance premium | insurance premium]] to cover the minimum administrative costs of issuing and maintaining a policy, regardless of the policy's size. Historically rooted in [[Definition:Workers' compensation insurance | workers' compensation insurance]] in the United States, the expense constant reflects the reality that every policy carries a baseline cost for processing, record-keeping, and regulatory compliance — costs that do not scale proportionally with [[Definition:Premium | premium]] volume. Even a very small policy requires the same paperwork, systems entries, and servicing overhead as a larger one, and the expense constant ensures the [[Definition:Insurance carrier | carrier]] recoups those fixed outlays.

⚙️ The charge is typically established by a [[Definition:Rating bureau | rating bureau]] or state regulatory authority and applied uniformly to all policies within a given line of business. In U.S. workers' compensation, for example, the [[Definition:National Council on Compensation Insurance (NCCI) | National Council on Compensation Insurance (NCCI)]] or the relevant state rating organization sets the expense constant amount, which is then added on top of the calculated [[Definition:Manual premium | manual premium]]. Unlike [[Definition:Experience modification | experience modifications]] or [[Definition:Schedule rating | schedule rating]] adjustments, the expense constant is not subject to modification — it remains the same whether the [[Definition:Policyholder | policyholder]] has a pristine [[Definition:Loss history | loss history]] or a troubled one. It appears as a separate line item on the policy's premium computation sheet and flows through to the insurer's [[Definition:Earned premium | earned premium]] over the policy period.

💡 Although the dollar amount is modest — often in the range of a few hundred dollars — the expense constant plays an important role in rate adequacy for carriers writing large volumes of small-premium accounts. Without it, the smallest policies would be systematically underpriced relative to their servicing costs, creating a drag on the [[Definition:Expense ratio | expense ratio]] and ultimately on [[Definition:Underwriting profit | underwriting profitability]]. For [[Definition:Insurance agent | agents]] and [[Definition:Insurance broker | brokers]], understanding the expense constant helps explain premium components to clients, particularly small businesses that may question every charge on a workers' compensation policy. In jurisdictions outside the United States, similar flat administrative surcharges exist under different names, though the formal "expense constant" terminology is most entrenched in the U.S. regulatory framework.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Workers' compensation insurance]]
* [[Definition:Manual premium]]
* [[Definition:Expense ratio]]
* [[Definition:National Council on Compensation Insurance (NCCI)]]
* [[Definition:Premium computation]]
* [[Definition:Rate adequacy]]
{{Div col end}}

Definition:Expense constant - Revision history

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