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Guaranteed Cost Is Safest Yet Most Expensive Workers Comp Coverage

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Term of the Day – Guaranteed Cost

A guaranteed cost plan is the most predictable type of insurance policy. In these policies, the premium is a fixed cost based on the final audited payroll, manual rates, and any applicable pricing programs. It is not subject to adjustment due to losses that occur during the policy term- instead premiums are charged on a prospective basis.

The usual Experience Rating Period does not count the most recently policy year.  The period comes from the second, third, and fourth policies in the past.  (Retrospective).

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A rate is agreed on when the policy is created and is multiplied by the exposure base to yield the premium. The only variable affecting premium that should change between policy inception and audit is payroll. If the exposure base, for example: sales, is more or less than expected at the policy’s creation, the premium will be adjusted accordingly. Loss experience does not affect the premium.

A guaranteed cost plan transfers your risk to an insurance carrier. You pay a fixed rate for your term of coverage, but get no immediate reward for good risk management efforts or results.

Compared to other ways to insure for workers’ injuries, guaranteed cost has the least variability.   However, other coverages may suffice at a cheaper rate.

2019 Update – California recently published a study that shows a  self-insured 21% savings when compared to a guaranteed cost program.   One of the self-insurance concerns is that a company is large enough to bear the direct cost of any major or a spate of accidents.

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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt 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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