LCM = Loss Cost Multipliers In WC – What You Need to Know
Workers Comp lost cost multipliers with the acronym LCM need to be part of the conversation when discussing Workers Comp rates for employers.
Last week, I attended the 2024 NCCI AIS in Orlando. One of the sessions (check it out here) centered on an explanation of how workers comp loss costs have experienced reductions over the last few years, if not longer.
Very often in the insurance department press releases, one can see multiple years of almost all states trumpeting a reduction of loss costs. Yes, this does help insured employers indirectly reduce their overall WC budgets.
Loss Cost Multipliers – Definition
What is a loss cost? Loss costs are advisory rates suggested for each classification code. Each state will produce a listing of these rates annually. California’s rating bureau, the WCIRB refers to them as pure premium rates.
Workers compensation insurance carriers usually file a listing of each insurance carrier’s loss cost multipliers each year. The Missouri Department of Insurance provides a great webpage on LCMs.
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From their website –
It is up to each insurance company to develop its own loss cost multipliers (LCM), which is the second component of your rate. This component is based on the company’s own operating expenses, taxes, and profit provision. Although insurers may start off with the same base loss cost published by NCCI, their individual LCMs will vary greatly. This means the rate you pay will be different from insurance company to insurance company. __________________________
Who sets the LCMs? Most of the time, an insurance carrier has actuarial and underwriting departments. These two departments usually work together to make sure that the rates they charge will cover these costs and make a profit.
If a carrier has experienced multiple heavy losses in the past few years, the insurance company’s actuaries will adjust the LCM higher to make sure the carrier charges a rate that covers the cost of the claims and retains a profit.
Insurance carriers do not always use the loss cost multipliers to increase the rates. If the carrier has experienced lower losses than expected for a certain period, the multiplier may be less than 1.0 which results in a built-in discount from the advisory loss cost produced by the insurance rating bureau such as NCCI or WCIRB.
Notice the above statement from the Missouri DOI in bold letters – will vary greatly.
Bottom Line
Many factors beyond the LCMs result in the rate an employer is charged for their Workers comp premiums. Asking why remains the most potent way to keep your insurance costs in check.
