One of the most common questions I am asked by the owner's of staffing firms is "What kind of quote can you get for me?" This inevitably leads to a discussion about insurance companies and the outrageous rates they charge for workers comp. At this point, I typically ask, "Do you have an outrageous 'loss pick' that would justify being charged those rates?" And then, I see a confused look, practically begging me to explain what the heck a "loss pick" is. So...what is a "loss pick"?
A loss pick is simply a prediction of the total claims dollars that will be paid by the insurance company during the policy year. These are developed by the insurance company actuaries using statistics and predictive models. In another blog, I will explain in detail the process for calculating a loss pick. For today, suffice it to say that the loss pick is calculated using the past claims experience of a business. The more claims dollars paid, the higher the loss pick.
Knowing your loss pick is one of the most empowering bits of knowledge for a staffing firm owner. If you know your loss pick, you can figure out what your rates should be for any type of insurance program. Guaranteed cost, retrospective rating, captive insurance programs, and large deductible costs are all calculated using your loss pick. You can use your independent loss pick to negotiate your renewal and compare the costs of different programs.
Once you have your loss pick, calculated either by yourself, or your independent risk manager, use it to negotiate with your insurance underwriter's loss pick, which will almost always be higher than yours. The insurance company loss pick will always be more conservative in order to justify higher rates. Negotiating a decrease in the underwriter's loss pick will always make a bigger difference than just trying to negotiate a lower premium.
Insurance companies have a target ratio of total claims (Loss Pick) vs total premium. Guaranteed cost programs typically aim for 30 - 40 % in claims dollars vs total premium. Group captives may aim for 45 - 50% or higher in claims dollars vs total premium. Top notch captives may be even higher than that, resulting in lower overall costs for the owners. Large Deductible programs and Retro programs depend on a variety of factors, but they are always tied back to the loss pick.
If you want to start lowering workers comp costs, focus on lowering your loss pick. I will dedicate a future blog to the topic of lowering your loss pick, so stay tuned. And before you complain about outrageous insurance rates, your time might be better spent making sure that you don't have an outrageous "loss pick".
Fair Warning: Calculating an accurate loss pick can be a very complex task, so don't hesitate to find a Risk Management Professional that can assist you.
Visit www.trinitecorp.com today to learn how we are helping staffing firms make more money from the pitfalls of Workers Compensation, Health Care Law Reform, and More.