Can a workers compensation retrospective rating plan be a good tool for larger accounts as the comp market hardens?
Many insurance companies and industry professional expect the workers comp market ot begin to harden this year (2012). A hard market means that basic manual rates will increase for all risk regardless of their experience modifier or their prior losses. The predictions are based on the combined loss ratios reported by insurance companies over the past few years as well as rates proposed by NCCI.
As Retro Plan can be a good tool for employers with larger premiums- typically $250,000 and up. These plans are basically a risk sharing arrangement between the inurance company and the insured. The policy contains a minimum premium, a maximam premium, and a basic premium (the expected premium). A rating formula is created for each risk and applied to determine premium based on actual incurred and reserved claim costs during the policy period.
Retro Plans can cost less than 50% of a standard, first dollar coverage policy when claims are controlled. On the other hand, the maximum exposure (ultimate cost of the policy) may be greater than the standard policy in the event an insured has a number of costly claims. Since most employers are risk takers anyway the thought of saving money for coverage and focusing on risk management should be a no-brainer.
A few companies have developed front loaded retro plans. This type of program allows for the expected discounting to be applied during the policy period so employers can improve their capital position. In some cases we have worked with carriers to provide Retro Plans on a Pay As You Go basis. Class code billing rates are adjusted up or down each quarter to coincide with claim development.
As Retro Plans continue to increase in popularity, more insurance companies will endeavor to create new and innovative solutions to insurance employers in the United States.
