Advisory Loss Costs And Premium Bill Confusion
Our company was able to access the advisory loss costs figures for California. Why is the final premium bill so different than these rates? I received this question last week.
The advisory loss costs are published for each state by your state’s rating bureau. California’s is published by the WCIRB (Workers Compensation Insurance Rating Bureau).
The advisory loss costs are just that – rates for each classification code used as a standard. Each insurance carrier may deviate on certain classification codes or just publish a flat overall deviation.
The deviations are usually more than the loss costs codes. California’s WCIRB has published a great explanation of why insurance carriers add in a cost factor known as loss cost multipliers.
The pure premium rates issued by the WCIRB are meant to cover:
- Loss Adjustment Expenses
- Claims Costs
The carrier’s premium rates are designed to cover:
- Profits
- Dividends
- Taxes
- General Expenses
- Acquisitions Expenses
- Commissions
- Loss Adjustment Expense
- Claims/Losses
I do realize CA’s WCIRB is a standalone rating bureau. However, the same components are used in other states such as those covered by NCCI or other independent state rating bureaus.
The main reason I wanted to point these rates out was that some of the deviations are up to 211% of the advisory lost costs. The insurers of last resort or state insurance funds usually have much higher deviations as they do not turn away any applicants including the high risk employers.
I have rarely ever seen an insurance carrier file a deviation that was lower than the advisory loss costs. As you can see from the above list, there are too many costs and overhead the carriers must cover to break even or make a profit.
We have received many requests from employers over the years to furnish the advisory loss costs for their classification codes. The advisory loss costs are not really the main figures to examine for reducing Workers Comp costs. The carrier’s final premium figures are the ones that are the most important.
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