14 Resources

Rate Filing

Discussion of the rate filing process, advisory rates, assigned risk rates, loss costs, and carrier choices.;

Rate Development
The ICRB produces advisory and loss cost rates annually based on historical premium and loss data. Under Indiana's competitive rating law which became effective January 1, 1990, the ICRB files three types of rates: loss cost, advisory, and assigned risk. Here's an overview of each type of rate...
Loss cost rates only include the costs to pay losses. Loss costs rates do not include expenses common to all business (salaries, rent, utilities, etc.). By definition, the expense provisions excluded are: production, general expense, taxes, and profit and contingency allowance.
These expense provisions are added together and called "Total Overhead Provisions" in the annual rate filing, Exhibit II-A, Comparison of Proposed and Current Expense Provisions. For the 1/1/2019 advisory filing the total overhead provisions are 25.3%. If you reduce an advisory rate by this percent, it gives you the loss cost rate. For example, code 8810 rate is $.12 and the loss cost is $.09    (1 - .253) x .12 = .09.
Non- technical explanation: Loss costs are the average cost of lost wages and medical payments to workers injured during the course of their employment. Frequent claims by certain workers, the length of absence from work, the severity of the injury, the number of treatments, and any increase in the cost of health care generally, all these affect the average loss cost calculation.
Advisory rates include costs to pay losses as well as the costs of insurance company operations (all of the expense provisions). Advisory rates are developed on a standard premium basis. This means the advisory rates do not contemplate the competitive pricing of carriers such as premium discounts, deductibles, schedule rating, rate deviations, and dividends.
Assigned risk rates are the same as advisory rates, only mandatory (not advisory) for assigned risk business.
Why the three types of rates? Indiana has a competitive rating law for workers compensation. This means the Bureau can only file "advisory" rates for voluntary business with the Department of Insurance. "Advisory" means that a carrier has a choice: it can use the advisory rates, or file its own rates with the Department. If a carrier files its own rates it can use the "loss cost" rates and add in a factor for its own expenses, usually called the "loss cost multiplier." The theory is, if a carrier is efficient and keeps its expenses down, it can use lower rates than its competitors and attract more customers (employers who buy insurance).
Administered pricing rates must be used by the carriers once filed and approved by the state. Administered pricing rates are calculated like advisory rates, in that they include costs to pay losses as well as the costs of insurance company operations (expenses). Indiana's law no longer permits administered pricing rates (mandatory use by carriers).
How to calculate the difference between an advisory rate and a loss cost rate
The loss cost multiplier (LCM) is not directly calculated in the filing. However, the implied LCM can be derived from annual advisory rate filing, in Appendix B-III of the annual rate filing. The rate for any given class is calculated by taking the loss cost for that class and dividing by the "target cost ratio." In the filing effective 01/01/19, the target cost ratio is 0.747, which gives an implied multiplier of 1.339 (1 / 0.747).
1.     Target cost ratio for the 01/01/17 filing is found in the Technical Supplement, Appendix B-II, paragraph 3.
2.     Target cost ratio for the 01/01/04 and prior filings is found in Appendix B-II of the Technical Supplement (Appendix B-IV for F Classes). Prior to filings having a Technical Supplement, the target cost ratio was in Exhibit II-A.
3.     Of course, every rule has exceptions - in this case, the calculated multiplier of 1.339 will not work for classes that have been limited by the swing limits. The codes that have been limited are shown at the end of Appendix B-II for the industrial classes and B-IV for the F Classes.
The difference between an advisory rate and a loss cost rate for a code is the loading for expenses. There are two ways to find out what that loading is. The first way, you start with the advisory rate and pull out the expenses. Simply multiply the advisory rate by the target cost ratio for a given code. For example, in the 1/1/2019 filing, the rate for code 7222 is $3.49 and the target cost ratio is 74.7%. Those two multiplied together results in the loss cost of $2.61.
The second way, you start with the loss cost rate and add in the expenses. Simply divide the advisory rate by the loss cost rate. In our example $3.49 / $2.61 equals 1.339. This number is usually called the "loss cost multiplier." Multiplying the loss cost of $2.61 by the loss cost multiplier of 1.339 results in the advisory rate of $3.49. So, a carrier can now apply this knowledge in developing its own rates. It knows that the advisory rates are calculated with a 1.339 loss cost multiplier. The carrier can chose a multiplier of say 1.20 which results in its rates being lower than the advisory rates by 20%.
Carrier Must Choose
With each advisory rate filing that the ICRB makes on behalf of all its members with the Indiana Department of Insurance (IDOI), a carrier must always make a choice at that time. The choice is to either use the advisory rates or not.
If a carrier chooses to use the advisory rates, it simply uses them and does not make a filing with the IDOI. This matter was clarified in a letter from Keith Kendall, IDOI, to Darlene Kepner, ICRB, dated 9/8/89. If a carrier decides to use rates other than what the ICRB filed, then it must make its own filing with the IDOI. Filings must be actuarially justified.
IDOI Bulletin 67 describes filing requirements for carriers filing Loss Cost/LCM's.
Recent hostory of implied loss cost multipliers (LCM):
Advisory Rate Filing eff dateLCM
Carrier's Filing
A carrier completes the Indiana Department of Insurance P & C Filing Form. The carrier should indicate in the "Description of Filing:" line that the filing is for loss cost rates and values or for a loss cost multiplier and reference the appropriate ICRB/NCCI filing to which the LCM relates. Check the "RATES" box. Most carriers also provide a narrative description to explain what the filing is about. The key factor is that a person reviewing the filing can understand what's contemplated in the filing.
What Rates and Factors Could a Carrier File?
Class code rate
Class code loss cost
Loss cost multiplier (LCM)
Disease loading
Ex-medical ratio
All miscellaneous values:
Fixed payroll amounts for:
Taxi companies code 7370
Executive officers (min or max)
Athletic teams (min or max)
Sole proprietors, partners, and LLC members
Expense constant
Coinsurance or deductible premium reduction percentages
Premium Discount Table
USL&HW percentage
Employers Liability Table for Increased Limits
Retrospective Rating values
Note on Second Injury Fund Surcharge
Although a carrier does not need to file a factor for the Second Injury Fund Surcharge, it must calculate its own factor. The statute provides that the surcharge is not considered premium. That's why a carrier does not need to file a factor and why the ICRB does not file an advisory statewide factor.
What Rates and Factors Could a Carrier NOT File?
Experience Rating Plan values (the plan is mandatory in Indiana):
Expected loss rate (ELRs)
Discount ratio (D ratio)
State per claim accident limitation
State multiple claim accident limitation
USL&HW per claim accident limitation
USL&HW multiple claim accident limitation
Employers liability accident limitation
USL&HW Act - expected loss factor - non-F classes
Ballast formula
Cap on modifications formula
Schedule Rating Table
Hazard Group Classification Table
Carrier decides to use ICRB advisory rates - no carrier filing needed
Carrier decides to use its own rates - carrier must file its rates with DOI
Example Scenario
Let's say back in December, 2015 a carrier decided to use the 1/1/19 advisory rates. Therefore, it did not have to file anything with the DOI. Now the ICRB has filed the 1/1/20 advisory rates. As explained above, the carrier must make a choice on the 1/1/20 filing. If it uses the 1/1/20 filing, it does not have to file anything. If the carrier wants to continue to use the 1/1/19 advisory rates and not the 1/1/20 advisory rates, it now must file with the DOI because as of 1/1/20 it would be using rates other than what the ICRB filed as of 1/1/20.
IDOI Bulletin & Statutory Authority
For more information on this subject, please reference the Indiana Department of Insurance Bulletin 67, "Procedures for Rating Organizations and Insurers Electing to File Loss Costs" effective 01/01/91.
IC 27-7-2-20.2
Minimum premiums, rates, and supplementary rate information; filing; approval; proof of notice; public inspection
Sec. 20.2. (a) Every company and the bureau shall file with the commissioner all minimum premiums, rates, and supplementary rate information that are to be used in Indiana. Such minimum premiums, rates, and supplementary rate information must be submitted to the commissioner at least thirty (30) days before the effective date. The commissioner shall disapprove a filing that does not meet the requirements of section 20.1 of this chapter. A filing shall be deemed approved unless disapproved by the commissioner within thirty (30) days after the filing is made. A company may adopt by reference, with or without deviation, the minimum premiums, rates, and supplementary rate information filed by another company or by the bureau.
(b) Minimum premiums, rates, and supplementary information filed under this section shall be filed in the form and manner prescribed by the commissioner.
(c) There shall accompany each filing adequate proof that notice of the filing has been mailed, by first class United States mail, to each interested person at the person's address as shown on the records of the department.
(d) All information filed under this chapter shall, as soon as filed, be open to the public for inspection and copying under IC 5-14-3.
Components of Rate Filing
We created a Components spreadsheet  which summarizes information on recent rate filings such as: components of premium level change, average change by industry group, payroll limits, expense constant, medical/indemnity split, and loss ratios.

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