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Loss Cost Multipliers Definition – Real Deal On Insurance Premiums


The Real Deal – Loss Cost Multipliers Definition

The Loss Cost Multipliers definition (LCM‘s) is one of those “under the radar” concepts in Workers Comp. I had decided to comment on LCM’s as they are very important to your Workers Comp budget.  The LCM allows the insurance carriers to charge whatever their actuarial and underwriting departments think is appropriate for each classification code.

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received a question on LCM’s as an employer was confused as to why their insurance carrier was charging above what was published in their state’s online rating bureau.

LCM’s are basically the insurance carrier’s deviation from the advisory loss costs that are published by NCCI or your state’s rating bureau.

The advisory loss costs are what each state has set for a Classification Code. Advisory loss costs do have a function. They are the basis for the Loss Cost Multipliers.

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Almost all carriers will deviate from the advisory rate by adding in a factor above the advisory loss costs. There are in rare instances certain carriers that will file for a LCM under the advisory loss costs.

The LCM’s are basically your company’s real insurance rate basis. The basic formula would be (certain classification code for a certain year)

Carrier’s Rate = Advisory Loss Cost (published by rating bureau) * LCM

One of the most confusing areas is certain carriers may have multiple named carriers that look similar, but have very different LCM’s they have filed for all or certain class codes. I wanted to try to make this the least confusing possible.

The main takeaway is the carrier’s filed deviations (LCM’s) from the advisory rates are the basis for what you pay in Workers Comp premiums. Some LCM’s are up to 211% of the advisory rate.

The bottom line is exploring the insurance market each year for quotes is usually a good risk management technique as a Workers Comp carrier can change their rates dramatically from year to year by filing a different LCM.

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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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