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California Loss Cost Multipliers Say No To Reform Measures


California Loss Cost Multipliers Do Not Reflect Any Reform Measures

The California Loss Cost Multipliers has said no to reforms. Loss Cost Multipliers (LCM’s) are one of the concepts in Workers Comp that I have been covering for many years.  LCM’s are the carriers’ own assessments of risk in the marketplace.  LCM’s allow deviations from the Advisory Rates published by each state’s rating bureau or the NCCI.

Map Graphic with Beach And Forest of California Loss Cost Multiplier

California’s rating bureau – the WCIRB left their advisory rates unchanged as they were unsure of the short or long term effects on Workers Comp.  The carrier’s however,  did not agree that the reforms are going to work in the short term and possibly even in the long term or at least the risk of them not working is high. 

The insurance carrier’s actuaries and underwriters are basically implying there is too much risk in the general CA marketplace to not increase rates.  In my humble opinion, insurance carriers and their actuaries do not like there being so many unknown variables when trying to provide employers in CA with quotes for coverage.

Insurance carriers are going to always err on the side of extreme caution.  If you introduce so many concepts that are not concrete then carriers are going to increase rates and wait for the fallout.  As a  person that cranks through so many insurance statistics, I would have to agree with their stance.  I do not agree with insurance carriers often.

If you look at a simple formula that I made up, you will see what I am concluding for the rise in rates.

A = B * C * D

Scheme California Loss Cost diagram
Wikimedia Commons – Industryman

This is a simple formula to calculate.  Let us say that B = 9, C = 10, D = 11.  A = 990 without question.  Adding in another, but unknown variable E to the mix would make the answer  990 * E. If  E could easily be estimated, there is some type of security in calculating A.

You may not be able to calculate A directly.  A is now just dependent on one variable –  E.   This equation to me was SB 899, the old California Reform Law.  You do not know exactly what A will be but you can come close knowing what E could possibly be in the equation.

This is where insurance carriers were after SB 899   A = 990 * E.

Along comes SB 863 and the formula now changes as there are so many unknown variables.  For example

A = B * C * D * E * F * G 

Picture Hand Presenting Financial California Loss Cost Concept

You now know that A = 990 * E * F * G.  If E, F, and G are not necessarily known, the risk for any underwriter or actuary is going to jump off the charts.  How do insurance companies reduce the risk – by raising rates substantially, thereby lowering the risk of loss due to so many unknown variables.   

This is an oversimplified version of events.  One can see, though, how the rates could have been sharply increased at least of the short term.   As underwriters and actuaries feel more comfortable with E, F, and G, the rate corrections will follow.

For our readers in other states, there have been many pseudo-reforms over the last few years.  CA is not alone in this problem.

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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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