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Blog Reader Question On Last Three Posts


Blog Reader Questions

A Question from the blog reader on the last three articles. Could you go through the math on how Primary Losses and Excess Losses affect Workers Comp premiums?

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Yes, no problem, as this is a very critical subject with a company’s Workers Comp premiums. Let us go back to the last example. You may want to get out your State Rating Bureau or NCCI Experience Rating Sheets.

An adjuster sets the Total Incurred on a file as $30,000. If we break down the loss into the two basic components:

  • Primary Loss = $15,000
  • Excess Loss = $15,000

To distill down the complicated rating formula, we should use the basic formula.

Look at the bottom left of the Experience Rating (E-Mod) Sheets. There is a factor there that is figured (discounts) the Excess Loss. We will use 20% as the factor to make the calculations easier.

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The Primary Loss affects the Workers Comp Premiums dollar-for-dollar. The Excess Loss is Multiplied by 20%.

So, the Primary Loss and Excess Loss in TRUE PREMIUM DOLLARS is:

  • Primary Loss = $15,000
  • Excess Loss = $15,000 * 20% =$3,000

In the first posting, if you have five $15,000 claims versus one $75,000 claim, they would look like the same effect on premiums, but due to the discount factor, the $30,000 claim affects the Workers Comp premium by $18,000 but five $15,000 claims affect the premiums by $75,000.

Why does this happen? The insurance rating system is designed to heavily penalize multiple accidents, not one larger one.

In the second posting about there being no such thing as a small claim, every claim affects the Workers Comp premiums in full up to $15,000. We often hear “Oh, well that was only a $13,000 claim.” The claim is not small as the premiums are being affected 5 times more heavily in the first $15,000 than the part of the claim above $15,000.

This can be confusing. Email or call with questions.

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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