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Workers Compensation Experience Rating System Big Falsehood


The Big Falsehoods Of Workers Compensation Experience Rating Systems

The Big Falsehoods of Workers Compensation experience rating system involve advisory rate accuracy.  I recently received an email from a regional insurance company reporting that a certain state had an 8% reduction in the advisory rates also known as loss costs.   This is one of the inadvertent falsehoods in Workers Comp.

Graphic Of Star Big Falsehoods Workers Compensation Experience Rating System

A certain state reducing their advisory rates has very little to do with the final premium any employers will pay in that state.  Insurance carriers can immediately change their loss cost multiplier (LCM) to offset any rate reductions.  For instance, I know of one carrier in California where the LCM is 211% of the loss cost or advisory rate.   This is an approved LCM that is on file at this time.

Some carriers change their LCM’s frequently.  Almost all state’s Workers Compensation Departments just rubber-stamp the increases or decreases.

Hand Drawing Big Falsehoods Bar Graph Decrease

Carriers can actually file an LCM for each classification code in a certain state.  Most carriers file only one LCM per state for all class codes.   If a carrier does not wish to incur the aforementioned 8% rate reduction across the board, they can easily file a new LCM with an 8% increase.

Rate decreases are not necessarily a worthless or negative development.  Most carriers do not immediately file an LCM change in response to a loss cost decrease by the state.  However, they can file an increased LCM if they wish.

The takeaway is the policy and the rates that are charged to your company are the true and final rate decrease or increase.  The final audited premium is the most important number for your company.   Anything else is just background noise that pertains to the workers compensation experience rating system.

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What Is An Experience Period?

Experience Modification Factor Calculated The experience period is the time frame from which the Experience Modification Factor (Ex-Mod, or X-Mod, or E-Mod) is calculated. The

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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