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Your Premium Bill And Advisory Loss Costs May Not Look The Same


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.

Vector Graphic of Big Scissor Cutting Budget Advisory Loss Costs Premium Bill
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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
Money Hanging Advisory Loss Costs Out To Dry

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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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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