How Are WC Premiums Calculated?
How are your WC premiums calculated? Your premiums are calculated from a formula that has no less than 34 steps to it. Let’s first look at what is the driving force behind what you pay in Work Comp premiums. The reserves, better known as the total incurred on the file, are the catalysts of the whole process.
As I have said many times before, WHAT YOU PAY IN PREMIUMS HAS NOTHING TO DO WITH WHAT IS PAID OUT ON THE WORKERS COMPENSATION CLAIMS FILE.
The reserves are what the adjuster thinks you will pay out on the file for the life of the claim. As you read this, do you know what the total incurred is for each of your Workers Compensation files? Most employers do not know the answer. Do not feel like you are in the minority. Have your loss run pulled immediately. The Total Incurred figure usually appears as Indemnity Total Incurred, Medical Total Incurred, and Expense (ALAE) total incurred. Do these Incurred figures look OK to you?
Do not feel bad as most adjusters take 3 years of on-the-job training to feel confident in setting reserves on files.
If not, you may be in for a real shocker. Immediately ask for your loss runs from your insurance carrier that shows all of the open files. Review them closely to see what you are paying for in your premiums.
If the total incurred for a file looks high to you, ask the adjuster to explain their reserves. If you feel like you need help with the loss runs, consult a Workers Comp claims consultant as soon as possible. Remember, you are charged for THREE years for the total incurred on a claim. Tomorrow – More on the Premium Calculation
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