Workers’ Compensation Pricing – Are You Doing Enough? 

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Questions to ask to achieve competitive workers' compensation pricing.

In today’s fast-paced, digital world, there are more options than ever for employers to purchase their Workers’ Compensation (“WC”) insurance. Depending on where a business is located, employers may be able to request quotes and obtain coverage online, through an insurance agent or broker, directly from an insurance carrier or state fund, or by partnering with a Professional Employer Organization (“PEO”). With so many options available for employers to shop for WC coverage, it is more important than ever for insurance programs to have competitive pricing structures and for insurance providers to proactively monitor their WC programs.  

Insurance providers that put their WC programs on autopilot may jeopardize the profitability and competitiveness of their programs over time. For example: 

  • WC programs that auto-adopt loss costs and rates from bureaus for WC insurance without periodic review increase the risk of their rates not aligning with their actual experience.  
  • As shifts in the market happen, WC programs risk losing their competitive edge if they assume the structure of their program is appropriate without keeping an eye on competitors or market trends.  

Based on decades of providing actuarial consulting and filing support to insurance providers throughout the U.S., here are the questions you should be asking to achieve competitive WC pricing.  

“When was the last time we reviewed our rate adequacy?” 

Failing to conduct regular assessments of rate adequacy poses the risk of drifting further away from adequate premium levels and could lead to adverse selection. This situation could ultimately result in a double-digit rate increase to realign to the appropriate rate level. Such a sudden hike in rates may motivate employers to shop for WC coverage elsewhere and have an adverse impact on your business growth objectives. If you haven’t reviewed your WC rates within the past few years, you are overdue for an evaluation. 

“Are we experiencing a decline in business?” 

Companies that diligently monitor their WC programs do not merely follow the bureau’s guidance, they strategically file for appropriate rate decreases to maintain competitive pricing – a savvy approach to attract customers seeking lower cost options. Your company should consider whether rate reductions that exceed those recommended by the bureau are an available option. Filing appropriate rate decreases over time may help attract and maintain policyholders with favorable loss experience seeking to lower their premium costs. 

“What are our competitors doing?” 

Speaking of competitors, their actions can offer valuable insights into potential revenue opportunities your company may be overlooking. Analyzing the industry or specific competitors can help you formulate necessary program enhancements to ensure your continued competitiveness. 

“How can we enhance our pricing segmentation strategy?” 

To determine the effectiveness of your pricing segmentation, you should conduct a thorough analysis of the rating detail. This evaluation may reveal the potential need for updates to tiering, new class deviations, and rating discounts/credits, which can support your portfolio growth goals or enable precise targeting of specific market segments.  

In addition, by evaluating your portfolio by rating detail, you may discover it’s a good idea to discontinue underwriting certain risks. The analysis could also indicate further segmentation is needed. Did you know there are jurisdictions that permit filing rates for sub-classes? By doing a thorough review, you could discover an opportunity to split a single class code – due to diverging results based on distinct segmentations within that class grouping – to improve rate adequacy. 

Even if your WC programs are performing comparably to industry standards, a granular analysis of the rating attributes could hold the key to achieving competitive pricing. 

“Are we planning to grow?”   

If your intentions involve expanding your WC offerings into new jurisdictions, conducting a market analysis of competitor programs can provide valuable competitive intelligence to help you hit the ground running. By analyzing the approved programs of leading insurers, you can identify potential gaps in your proposed programs and ensure adequate pricing even before entering that market. 

“Are we staying on top of industry changes?” 

The greater your awareness of industry changes, the better prepared your company will be to file and execute changes without disrupting the business flow. One example is the California Department of Insurance’s evolving position regarding large risk alternative rating options (“LRARO”). Keeping informed of market changes allows you to develop, file and implement program revisions and offer more options to your policyholders.  

Work with actuarial consulting partners 

Keeping a close eye on all the factors that could impact your WC pricing is a time-consuming and potentially overwhelming endeavor. It’s understandable that so many companies choose to auto-adopt and maintain a consistent rating structure over time. However, it’s impossible to overstate the potential gains of closer program monitoring. 

Perr&Knight is a leading provider of actuarial consulting services for WC insurance and can help monitor your rate adequacy on a regular basis. In addition, our experienced actuaries keep up with current industry trends, regulatory changes, and pricing flexibilities and can serve as a valuable partner to ensure you stay informed and knowledgeable about the WC market.  

The bottom line on Workers’ Compensation pricing is that taking a “business as usual” approach isn’t enough. Sooner or later, lack of proactivity will catch up to you. Adequate monitoring and partnership with experts increase your chances of successfully achieving adequate WC pricing for your program. 

Let us help you determine if your WC pricing is adequate. Contact the experts at Perr&Knight today.