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Loss Cost Multipliers Affect Premium Audits Indirectly


The Loss Cost Multipliers Have An Indirect Effect

I recently posted on Loss Cost Multipliers that affect your premium audit.  I have received so many inquiries to my last post on the subject that I thought I would cover the subject again.  This is an emailed question I received last week.   The answer is definitely yes.  Loss Cost Multipliers (LCM’s) affect your premiums as much as your E-Mod (X-Mod in CA).

Hand Holding Pen And Notes Loss Cost Multipliers With Profit Concept

Advisory rates are posted by the NCCI, WCIRB, or the state’s rating bureau.  Loss Cost Multipliers  are each carrier basically asking the state’s permission to deviate from the Advisory Rate.

There are two solid facts about LCM’s:

  • They are usually a % increase over the advisory rates in most cases
  • A state will rarely reject the LCM’s requested by the carrier

The best way to cover  LCM‘s is by showing an example.  Let’s say the advisory rate for a trucking classification code 7219 is 12.50.  This means for every $100 in payroll for trucking in that state, the advisory rate published by the state for a certain time period is 12.50.

The insurance carrier says that to afford their overhead and to make a modest profit, they need to increase all classification codes by 1.35.   In our example above, the 12.50 per $100 in payroll now becomes (12.50 * 1.35) per $100 of payroll is now $16.88.

This is an area that employers are usually not privy to as you will only see the $16.88 rate.  The rates can deviate heavily amongst carriers in a certain state.  I know of one large carrier that is deviating their rates by 2.11 or 211% in a certain state.   

Graphic of Sack of money Loss Cost Multipliers In Premium Audit

In my example the trucking company would pay 12.50 * 2.11 = 26.38 per $100 of payroll for their truck drivers.  So, in that case, the trucking company would end up paying out over 1/4 of their payroll in Workers Comp insurance for their truck drivers.  Ouch!

At the premium audit, the auditor will, of course, not use the advisory rates.  He or she will use the rate after the LCM has been applied to the advisory rate.  There are many more steps to getting to the premium, but the LCM is just as important to your company as the Mod.  It is another multiplier in the formula.

If you are in the state risk pool due to a high E-Mod (X-Mod), the state will usually provide the rate with the LCM already calculated into the rate.  I will cover that next time.

The main takeaway is there are as many different rates as there are carriers in a state.   They do not just take a rate and use it.  Next time you look at your company’s renewal quote, you will know each rate has been deviated from the recommended rate by the state.

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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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