Advisory Rate Semi-rant – The Numbers
I apologize for my advisory rate semi-rant. A Workers Comp Advisory rate is just that – advisory rates. Much attention is given to the publication of advisory rates. They actually mean nothing whatsoever to what any company in that state will pay for Workers Comp Insurance.
I have used advisory rates as a bellwether for certain states’ rates changes. I recently posted an article on Iowa’s WC advisory rate increases.
The person or persons that actually decide what rates an employer will pay are:
- Actuary
- Underwriter
- Senior Management
NCCI, the WCIRB, or any state rating bureau is not in the business of setting carriers’ rates. Advisory rates are just that – advisory in function only.
I will give you an example of how senior management for a company can offset rates. As an example, let us say that Nebraska has decided to reduce their advisory rate 5% after a recommendation from NCCI. The insurance carrier can then file to have their rate deviated from the advisory rate at 5%+. This equals to a 0% rate decrease.
The deviated rate may also be called a LCM or Loss Cost Multiplier. Some states call their workers comp advisory rates Loss Costs. The insurance carriers will then file the LCM they wish to charge their insureds. An example of a LCM is 1.21 which means the carriers wishes to file their rate at 21% higher than the advisory rate.
Insurance carriers can file a different deviated rate every year or under special circumstances. Carriers are not locked into any rate deviation. I have rarely seen an Insurance Commissioner or State Workers Comp Department reject a rate deviation or LCM.
The employers are left wondering what happened to the advisory rate decrease that was published earlier in the year. There are certain carriers that may use advisory rates as their rate and not deviate from it. I have rarely, if ever, seen this happen.
There is a certain insurance carrier that has filed for a 211% deviated rate for quite some time. The carrier does take on very risky companies. That could be partially why they have filed such a high deviated rate.
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