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Controlling Workers Compensation Costs for Employers

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Articles from CompMetrics.com

Reduction in Pure Premium Advisory Rate is not a guarantee of lower premiums

PPAR vs insurance premiums

The recommended reduction in your Pure Premium Advisory Rate (PPAR) is not a guarantee of lower insurance premiums.

Rate Decrease – Really?

Before making sweeping statements, and particularly before quoting another source (WorkCompare) as an authority, take time to do some research.

A downward adjustment in the ‘average’ Pure Premium Advisory Rate (PPAR) per $100 of payroll does not automatically result in reduced premiums for California employers.

Yes, the WCIRB did recommend a reduction in the PPAR. Yes, it is likely the Insurance Commissioner will approve it. NO, it is not a guarantee that all, or any, of the employers will see lower insurance premiums – even on the same payroll figures.

The second part of this is carriers file their rates with the Department of Insurance (DOI). That is what they are going to charge their clients. Since the PPAR is ‘advisory’, no carrier has to follow those rates – they usually don’t. Usually, their rates are filed as a ‘multiplier’ of the PPAR.

Beware, nothing is what is seems on the surface

If you torture the numbers long enough, they will confess to anything."

In theory, if the PPAR goes down by 11% and the carrier files their rates with the same multiplier, it will march ‘lock step’ with the PPAR. That isn’t always the case. Take the case of Republic Underwriting (NAIC 24538). It recently filed new rates effective 09-01-2015. The last filing was 03-01-2015. Both filings used the PPAR current (at that time) as the basis for adding their modifier. The difference is, in March the modifier was 1.5 – In September, it will be 1.6. PPAR goes down, but the actual filed rates go up.

Of course, this is one example out of over 200 work comp carriers in California. But, beware, nothing is what is seems on the surface.

In addition, the carriers can adjust their rates by as much as 40% up or down based on discounts and surcharges.

Lastly, there are 493 work class codes that the PPAR applies to. Not every carriers writes all of them – usually just a few. The gross payroll figures will likely vary. Between 2013 and 2014, gross payroll increased 6.6%. The average rate per $100 charged increased by 2.5%. But, gross annual premiums increased by 11.5%.

Do you see a disconnect here? ‘If you torture the numbers long enough, they will confess to anything.’

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For more information on how Pure Premium rates affect your work comp premiums contact us for an individual consultation at no charge and no obligation.

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