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LCM-Workers Comp Loss Cost Multipliers – What and Why

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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.

graphic - dollar sign LCM Loss Cost
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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.

 

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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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