In an earlier post, I lamented that many clients (and some agents) feel the experience mod is uncontrollable. Today I would like to discuss a similar sentiment that I hear too often. Many clients (and agents) feel that the state rates and mod determine the premium and that is that. No deviation.
It is true the state sets rates by class codes. It is true your class codes are pretty narrowly defined meaning all carriers will use the same code and the same rate for your business. In underwriting language, multiplying the payroll by the rate for the class code(s) and totaling it gets us a "manual premium". The word manual comes from the "rate manual" as published by the state.
After we have a "manual" premium, we apply the experience modification. Guess what we call the premium after applying the experience "modifier." Yes, you guessed it, the "modified" premium. Again, I concede the point that 95% or more of the carriers operating in Indiana will get to this same modified premium. But that is not where pricing adjustments end.
In addition to the rates that are adopted by most carriers, the state sets out a schedule rating plan that is also adopted by the carriers. This plan allows an underwriter to apply credit (or debit) to the modified premium based on specific characteristics of the insured they are reviewing. The maximum deviation is 50%, though we aren't seeing those kind of pricing modifications in this market.
The reasons listed for the various credits are very specific. In reality, pricing decisions are often made based on profitability evaluations, competitive reasons, and losses. Then the specific discount is applied based on the amount of credit or debit needed to arrive at that price.
What it means to you is that all workers' compensation isn't priced the same. If a carrier views your business as a good one, discounts can be applied. Some companies are more liberal with discounts, and some are more conservative.
It is fair to say that these discounts are harder to come by the smaller the premium. There isn't enough validity in the experience to justify additional credits when one loss could wipe out the profitability. But if you have a large enough premium, and consistent enough loss experience, then your agent should be able to find you a carrier who can adjust premium accordingly.
How much credit should you expect? Well most insurance companies are going to want a loss ratio at or below 50% on their book of business. That means the most they will accept is 50% on your account. Average your loss experience, and double it. That is a premium target you could shoot for. If your "modified" premium is greater than that, you might need to ask for some credit. Just be sure to have the schedule rating plan memorized so that you can justify your request.
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