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What Is A Guaranteed Cost Program In Workers Compensation?


Article Reader Asks Good Basic Question on Guaranteed Cost Program

What is a guaranteed cost program?  Is that the type of policy I have in place now?   A great question on a basic subject was emailed in by one of our new newsletter subscribers.

Pic of old workers compensation guaranteed cost program policy
Wikimedia Public License

A Guaranteed Cost program means that you will pay a flat fee of sorts for a given policy period.  The policy is not adjusted for losses as in a loss sensitive program.   Most small and medium-sized businesses will usually find a guaranteed cost program as the most desirable insurance policy to cover their workers compensation losses.

The basic guaranteed cost program premium is calculated from a rate multiplied per 100 dollars of the employer’s payroll.   The final workers compensation bill for the policy period occurs after the premium audit for that policy year.

Once the policy is issued with the rates per $100 of payroll, those rates usually cannot change during the policy as with a loss sensitive program.

Loss sensitive program variables can be adjusted during a policy year depending on the amount of losses incurred during the policy year.

Guaranteed cost programs transfer the risk of the insured and administrative costs directly to the carrier once the policy is issued.  The total transfer of risk guarantees the cost at a certain level.

As businesses  grow, the need to retain part of their losses for a lower premium can lead to an employer to use deductible programs such as a large deductible.  The large deductible policy level will usually be $250,000 per claim.

The large deductible policies require the employer to “guarantee” more of the cost and not the insurance carrier.

The employer should always not just accept the cheapest policy for coverage.  Comparing at least three quotes per year may generate surprising results.

As your company is a small but growing company, a guaranteed cost program will likely be the best method to control your workers compensation costs.   Your company cannot likely bear the brunt of financing a large claim other than guaranteed cost.

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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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