retro rate

Workers Comp Retrospective Rating

Retrospective Rating: Premium based on Losses. The initial premium charged for a retrospectively rated policy is only an estimate. The actual premium is based partly on the loss experience occurring during the policy period. The premium calculation is actually performed annually after the end of the policy period. Along these same lines, occasionally an insurer may use a retrospective rating formula that has not been approved. Under these circumstances, the insurer must recalculate the premium against the approved formula and factors. We can help by verifying that the insurer in fact used the required formula.

The formula and factors used in this calculation are company specific factors that must be filed with the State Department of Insurance. The state specific rating organization (NCCI or the local State Rating Bureau) maintains a detailed description of the procedure as to how to calculate the premium based on the rating factors.

What all of this means is that even where the insurer has followed the formula in the policy, that formula may not be the right one. We can help because we know which formulas the insurer is required to use.

Retrospective Rating: Why We Can Help: We Wrote the Book On Retrospective Rating. We can help because after all, we wrote the book on retro calculations. During our years at the National Council on Compensation Insurance (NCCI), that was precisely our job. Together with our staff, we oversaw the U.S. retro rating system, including creating the formula and filing those formulas with State Departments of Insurance.

Why You Should Consider Us:
Because We Literally Wrote the Book on All of These Issues.

  • On audits;
  • On the Classification System (class code);
  • On the Experience Mod System;
    (or the e-mod; or the experience modification factor);
  • On the formula for High Deductibles;
  • On the definition of “Payroll” for purposes of calculating premium;
  • On all PEO workers comp issues, such as proper corporate combinations for e-mod calculations;
  • On the formula for Retros;
  • On the formula for schedule rating;

Because we did. And All of these items drive the final calculation of your workers comp premium.

Why You Should Consider Us: We Know This Stuff.

After all, during our years at the National Council on Compensation Insurance (NCCI), that was precisely our job. NCCI set the rules of the road for Audits; the Classification System; for the calculation of e-mods and High Deductibles and Retros and Scheduled Rating. And while at NCCI, we wrote the rules of the road for PEOs as to workers compensation.

Together with our staff:

  • We oversaw all the rules that are applied to audits;
  • We wrote the descriptions for the 600+ Classifications in the Scopes Manual;
  • We wrote and implemented the U.S. e-mod system; including its formulas;
  • We created and implemented the complex formulas for High Deductibles;
  • We authored and implemented the definition of “Payroll” for workers compensation premium purposes;
  • For PEOs, we wrote the rules for corporate combinations for their e-mods; and most of the other rules that effect PEO premium;
  • We created and implemented the complex formulas for Retros;
  • We created and implemented the complex formulas for schedule ratings;
  • We authored and filed some 500 statewide rate filings used throughout much of the U.S., setting the premium levels on about $15 billion of workers compensation premium – every year;
  • We gained regulatory approval to use all of the above formulas and rules;

Earlier in his career, as Iowa Commissioner of Insurance, Bill Hager judged each of these matters and approved or modified the rules as submitted to the Department of Insurance.

The Retro Rating System: How it Works. When issuing a retro policy, the insurance company agrees to a minimum and maximum possible premium for the policy, with the final premium to be determined based on a complex formula involving insurance company filed rating factors and losses for the policy.

Retrospective Rating: The Formula. As an example, one element of the formula is a calculation of the “basic premium”. The basic premium is the premium that you must pay even if your policy does not have any losses (unless you agreed to a higher minimum). The charge for the basic premium varies widely. It is not uncommon for the basic premium charge to be as low as 20% or as high as 60% of the cost of a traditional workers’ compensation policy.

A retro formula error cost this employer $125,000 in annual premium!

Retrospective Rating: Formula Errors Can be Costly. Needless to say, and as the above example points out, ensuring the retro formulas are correctly applied can make a huge difference in overall workers’ compensation costs. As a result, (i) NCCI and the State Rating Bureaus maintain a detailed “Retrospective Rating Manual” to thoroughly detail the formula in the retrospective rating calculation, and (ii) State Insurance Departments require insurance companies to file all of its retrospective rating factors.

What We Do: Step One: Were The Rating Factors Used In The Formula Filed With The State? As stated, the rating factors used in the formula must be filed with the State Department of Insurance. Occasionally, insurance companies will ignore the retro factors on file in favor of factors that result in a premium they perceive to be “competitive” with what other companies offer. This practice is not permitted. We will make sure that insurance companies stick to the formula they agreed to through their filing with the State Department of Insurance. This is no minor matter because separate factors will be filed every year in every state, and each of those state specific retrospective rating factors must be used in the calculation of retrospective premium. The effort required to gather the retrospective rating factors for each state can be significant. So the first key application of our expertise as to your circumstance is whether in fact the insurance company has appropriately used the retrospective rating factors in calculating your premium. We know insurance company filings and are comfortable in reviewing them. We have worked on 500+ filings with insurance companies and state insurance departments.

What We Do: Step Two. Was Premium Calculated Correctly? The retrospective rating formula is exceptionally complex. State Rating Bureaus maintain a detailed retrospective rating manual that is approximately 100 pages in length. In truth, there are very few people who understand all of the details of this formula. We understand these details. We wrote the book on how retrospective premiums are calculated.

What We Do: Step Three. Are the E-mod and Classification Decisions Correct? The retrospective premium calculation is based on the initial premium estimate. Errors in the calculation of the e-mod or misclassification will also affect the retrospective premium. A discussion of our review of E-mod and classification decisions can be found here.

What We Do: Step Four: We Will Calculate the Premium Correctly. If we conclude the insurer has wrongly calculated the retro premium, we will take the matter directly to the insurer and insist that they properly calculate the premium. We know insurance companies and are confident in working with them. We are both former insurance industry executives.

What We Do: Step Five: Advocate Your Case. Your retrospectively rated insurance policy is a contract between you and your insurance company. If your insurance company is not charging a premium allowed by the policy, the supporting rating manuals, and the filed rating factors, we will advocate on your behalf and take the matter to the next higher authority. We will directly apply our high-level firepower to the case.

Ready to Work for You Now. This team is prepared now - as in today – to begin working with you.  Please contact Bill Hager at 561-306-5072 or bhager@expertinsurancewitness.com for more information. To determine whether you are paying too much premium because of erroneous experience mod calculations, too much because of erroneous classifications: in short too much premium.


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