ARAP – Workers Comp Definition
ARAP charge appears on many policies. Over the past decade, various states have approved a new premium surcharge known as ARAP, Assigned Risk Adjustment Program. Massachusetts is an exception and here it stands for All Risk Adjustment Factor. The charging structure is very similar.
The factor is based on data from the experience modification computation and is applied to premiums, after the experience modification. This compounds the surcharge from the combined experience modification/ARAP.
Its purpose is to apply an additional premium to assigned risk policies with unusually high loss severity. The Assigned Risk Adjustment Program formula compares actual severity to expected severity.
Unlike the experience modifier, it is not a credit and debit plan. It can range from 1.00 (no surcharge) to 1.49 (49% surcharge). In some states, caps are placed on the maximum and in any approved states, the best an employer can expect is no surcharge.
An employer can find the surcharge on their list of policy charges. The charge will also appear on the final premium audit bill the employer receives at the end of the premium audit process.
The ARAP can be considered a penalty of sorts for unsafe employers.
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