Since 2011, there has been a large shift in North Carolina workers’ compensation law. These changes include statute changes, rules changes, personnel changes at the Industrial Commission, and new focuses for the Commission such as faster decisions and finding uninsured employers.
Recently, the North Carolina Rate Bureau has released new numbers advising for a reduction in loss costs for the voluntary market. In particular, the NCRB has suggested that the loss costs for the voluntary market for workers’ compensation insurance be reduced on average by 10.2%.
Loss costs, sometimes called pure premium, is a number that represents the expected costs to an insurer of loss (such as indemnity payments) and the adjustment expenses for those payments. The loss costs are specifically tailored to job codes, but represent the overall market. The recommended reduction in rates would become effective in April 2016.
This is a significant reduction. In 2014, NCRB only recommended a reduction of the loss costs numbers of 3.4%. In 2013, the loss costs recommendation was an increase in 0.3%. In 2012, the loss costs recommendation was a 0.5% decrease.
The natural next question among employers is whether they will see a reduction in workers’ compensation premiums based on the loss costs reduction.
The ultimate answer is: it depends on your insurance carrier. First, your insurance carrier would have to adopt the recommended loss costs. Even if your insurance carrier does, the loss costs number is one factor in determining rates. The other major factor is the insurance company’s Loss Costs Multiplier (“LCM”). This LCM factors the individual insurance company’s expenses such as commission and brokerage, general expenses (overhead), taxes, licenses, profit, contingencies and investments. You insurance premium will be derived from the types of jobs your employees do, the amount of payroll you have, the loss costs, and the LCM.
While the reduction in loss costs is not a guarantee of premium reduction, it is a predictive number that estimates that workers’ compensation costs are on a downward trend.