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Loss Cost Multipliers – The Real Numbers That Carriers Charge

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Loss Cost Multipliers Examples

Last week, an article was published on this blog in reference to Loss Cost Multipliers.   The article received a large amount of traffic.  A few questions were emailed to me on how Loss Cost Multipliers generate  what a carrier actually charges for Workers Comp premiums.

Workers' Compensation Loss Cost Multipliers FormulaThe following is just one example of a large number of  Loss Cost Multipliers in a state.    This is an actual LCM filing.   Any carrier-identifying information was masked.   For readability,  the numbers are inserted down the page instead of across.

Insurance Carrier – ABC Insurance Company

Rating Effective Date  – 4/1/15

Loss Cost Multipliers – 1.4040

*Applicable To All Classes – Yes

Date Of Filing  – 12/1/2014

*This means that for all Advisory Rates, ABC Insurance Company is adding a markup of  1.4040.

Some insurance carriers have many Loss Cost Multipliers depending on each Classification Code.  The above is an example of a carrier that is using the formula:

Advisory Rate Published By Rating Bureau * 1.4040 = True Insurance Company Rate**

For example, the Rating Bureau publishes the advisory rate for Classification Code 8810(Clerical) as .80.   The rate that ABC Insurance Company would charge = .80 *1.4040 = 1.12.

Woman Working Loss Cost Multipliers On Computer
Wikimedia Commons – Oregon Department of Transportation

**The rate is per $100 or payroll.

Referring back to the article that I mentioned earlier if the rating bureau decided to lower the advisory rate from .80 to.75, ABC Insurance Company and their actuaries/underwriters may say that they cannot afford to do business in the state with that much of a reduction.

ABC Insurance Company may then file an LCM to account for the reduction.   So the formula would be  .75 *1.493 = 1.12.   In other words, ABC Insurance Company, by adjusting their LCM really never reduced their rate even though the state reduced their overall rates.   By raising their deviated rate (LCM) to 1.493, ABC Insurance Company is still charging the same rate or 1.12.

Carriers may never do this- however when a state rating bureau releases new advisory rates, this may mean little to the employers’ final premiums paid in the state.  

A 20% reduction in advisory rates may mean very little unless the carriers go along with the reduction.

For the “number-crunchers”, yes this was a very oversimplified example, but the Loss Cost Multiplier numbers still hold true.

©J&L Risk Management Inc Copyright Notice

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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt 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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