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Loss Cost Decrease Does Not Directly Result in Premium Decrease


Loss Cost Decrease Question From Newsletter Reader

A newsletter reader recently asked this question after reading that their state recommended a Workers Comp Loss Cost decrease recently.

Graph of loss cost decrease dog reaction times
Wikimedia Public Use – JLW87

If our state has a Loss Cost decrease does that mean we will pay less premium?   My answer to their email inquiry was “not necessarily.” 

I have written on this subject a few times over the last 12 years.  Loss Cost increase and decrease questions seem to one of the unexpected more popular questions since 2000.

Many states have been very active in publishing Lost Cost information over the last two weeks.   Our HQ state (North Carolina) just recommended a 3.9% decrease.

California’s WCIRB (Rating Bureau) refers to these rates as advisory pure premium rates. The WCIRB has a great definition of advisory pure premium rates that can apply to Loss Costs:

California advisory pure premium rates reflect a projection of losses and loss adjustment expenses per $100 of payroll for each of the approximately 500 standard classifications used in California. The data used to calculate the pure premium rates proposed by the WCIRB are derived, in part, from aggregate financial data collected from insurers who have workers’ compensation underwriting and claims experience in California.

Loss Cost Multiplier Definition

Insurance carriers very often publish and re-publish Loss Cost Multipliers.   Loss Cost Multipliers are sometimes published per insurance company as in this Kansas example or per each or certain classification codes

Loss Cost Multiplier (LCM’s) definition –

LCM’s are basically the insurance carrier’s deviation from the advisory loss costs that are published by NCCI or your state’s rating bureau.

The advisory loss costs are what each state has set for a Classification Code. Advisory loss costs do have a function. They are the basis for the Loss Cost Multipliers.

Loss Cost Decrease A Good Sign

If you would like to see what a decrease looks like check out this lengthy letter from the North Carolina Rate Bureau to The Insurance Commissioner (thanks WorkCompCentral.com) look like – here you go. 

Pages 11 – 15 show the actual rate charts.   This is an example.  Most states follow the same type of process to have the Lost Costs approved by the Insurance Commissioner.

If a state recommends a Loss Cost reduction, does this mean that the companies in that state are safer?  Yes, but not necessarily.

Huge Loss Cost and LCM Difference

A huge Bamboo Tree Loss Cost decrease in the Forest
Wikimedia Commons – Stéfan Le Dû

One of the big differences between Loss Costs and LCMs is Insurance Commissioners have rejected, raised, or lowered the Loss Cost recommendations by NCCI or their own state’s rating bureau.

I have yet to see an Insurance Commissioner reject a carrier’s LCM filings.   The rejections could have occurred, but I have yet to see one.

Bottom Line

And the final answer is – Loss Cost decreases show a good trend for a state.  The carriers adjust their rates almost at will.   Please pull up your Workers Comp Dec Pages and review them before policy renewal and at the premium audit.

You do read your Dec Pages – yes?  If not, please read or have someone in your company read them that oversees your funds.


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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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