What’s the best way to compare Workers’ Comp quotes? Is it the bottom line figure? Is it the “rate.”? If its the rate, what rate–modified, unmodified, final, interim? What about all the fees and assessments?
Our recommendation is that you compare rates by Class Codes, esp the Primary class code which is typically responsible for the most payroll and premium.
Steps are as follows:
Identify the Class Codes.
If available, get the Pure Rates for each Class Code published by the Workers’ Compensation Insurance Rating Bureau of California (WCIRB).
Identify the Base Rate or Manual Rate for each Class Code; this is the starting rate for the Insurance Company providing the quote.
As a matter of interest, if you divide the base rate by the pure rate, that will give you the rate modification factor (RMF) which is essentially the Insurance company’s “markup” that they have filed with the Dept of Insurance. Generally these RMF’s apply to all classes written by the carrier, but they can vary by Class Code in some cases.
Comparing the markups from the same carrier year to year, or comparing the markups between carriers will give you an idea of where the carrier thinks rates are going, and what they will need to pay future losses. To some extent, it is their prediction about where things are going.
For example, in the Class Code 4499, “Plastics-Thermoforming,’ if the pure rate for 2011 is $4.03 and the base rate for the carrier is $7.62, it means the RMF is 1.89. This means the carrier’s markup is 1.89 times the pure rates.
Identify the discount factors against this manual premium. These discounts or surcharges will reflect their experience in certain territories, or certain classes of business in which they feel comfortable, or simply discounts for premium size. Such terms used here are “Schedule Modifiers”, “Territorial Deviations”, “Safety Credits” to name a few.
With these discounts, you will arrive at standard rate and premium. This identifies the carrier’s best quote for your business.
Apply the Experience Mod; this is something you earn for yourself (for better or worse) and is applied to every quote from every carrier in exactly the same way. Once you have it, it’s inescapable.
After all factors are applied and including the Experience Mod, you have identified the “final rate.”
Once the premium is developed from your final rate, the Terrorism surcharge is applied to the modified premium. Unlike other lines of insurance, it is not optional, and must be included.
With all these factors applied, the carrier reaches a “Standard” or “Normal” premium total.
There are then seven additional “taxes and assessments” that are individually calculated but amount to about .055% of the Standard Premium.
In comparing years to each other, or carrier quotes to each other, I like to see the rate before the application of the Experience Mod–this is where the competition is, since the Experience Mod and the Taxes and Assessments are the same for all carriers.
Carriers don’t always conveniently use the same format to easily compare rates. Looking at the bottom line premium number without knowing the payrolls used is very misleading. Have your broker provide a consistent format which makes it easy to compare, and then stay consistent with it.
We have client history now that can trace 15+ years of rates. It’s very useful to have a longer term context for your rates and premium, not just how it compares to “last year”. In many cases, even a 10-15% increase in rates this year compares favorably to the average rates of the last 15 years.
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