Workers’ Compensation Glossary

Actual Excess Losses From the experience modification calculation. The amount of losses that exceed $5,000. A measure of loss severity.

Actual Primary Losses From the experience modification calculation. The first $5,000 of a loss. A measure of loss frequency.

Agent A legal representative of an insurance company. Role in the insurance transaction is to sell and service insurance. May be an employee. See also Independent Agent, Direct Writer and Captive Agent.

Agent of Record See Broker of Record

ARAP Assigned Risk Adjustment Program

Assigned Risk Adjustment Program Used in some NCCI states as a debit factor for risks with an experience modification over 1.00.

Assigned Risk Plan AKA Pool. This is a risk sharing mechanism set up by states to provide insurance for employers where no standard insurance company is interested. The problem may be with the risk (poor loss experience) or with the state’s workers’ compensation system (the state insurance has set up a system where insurers feel that they cannot make money.)

Audit Worksheet The document prepared by the auditor that outlines the payroll of your company. In many cases the worksheet will show the remuneration of each employee and the classification assigned to that individual. The information on the worksheet is what is used to calculate the final premium

Audited Premium The final premium based upon the audited, actual payrolls.

Auditor See Premium Auditor

Average Weekly Wage A wage figure used to determine the payout in lost wages to an employee injured in a workers’ compensation loss.

Ballast Value From the experience modification calculation. From a table of values published by individual states. The value increases with the size of the company as measured by expected losses.

BOR See Broker of Record

Broker An insurance professional who represents the insured in the insurance transaction. Sometimes used incorrectly as a synonym for agent.

Broker Of Record Letter A form letter used to indicate to an insurance company a policyholder’s preference as to which insurance agent will have exclusive rights to the insured. Excludes all other agents/brokers from accessing the insurance company in question for that policyholder.

Captive Agent An insurance agent who represents a single insurer or a single group of insurers. Captive agents may have to give their represented insurers first right of refusal or may be barred from accessing other insurers altogether.

Carrier The insurance company.

Casualty Insurance Classification of insurance dealing with losses caused by issues of liability through bodily injury, personal injury, wrongful acts or property damage. Includes:

--Auto Insurance

--General Liability

--Workers’ Compensation

--Professional Liability

--Director’s and Officer’s Liability

--Fiduciary Liability

Many casualty insurers also write surety business.

Classification See Employment Classification

Closed Claim A claim that has been resolved. No further payments or treatments are expected.

CNP Closed No Payment. Used on loss runs and claim reports to indicate that no payment was made on a claim and the file has been closed.

Commercial Lines Insurance A broad category of insurance indicating insurance for businesses, professionals and commercial establishments.

Compromise and Release Agreement Claim settlement that includes a payment (usually a lump sum) in exchange for a release of the employer from any future liabilities.

Controllable Mod The part of the experience modification that is controlled by the losses of an employer. It is the difference between the current experience modification and the minimum modification.

Coverage The scope of protection of an insurance policy. Used as a synonym for insurance.

D-Ratio Discount Ratio. From the experience modification calculation. Indicates the percentage of expected losses that are considered primary. Considers issues of severity of loss rather than frequency.

Deductible The part of a claim paid for by the insured. Can be for the entire claim, medical payments only or for indemnity claims.

Direct Writer An insurance company that does not work through independent insurance agents. Agents for direct writers are usually employees of the insurance company or in exclusive relationships with the insurance carrier. Liberty Mutual, State Farm and Allstate are direct writers.

Dividend A return of premium given after a policy has expired based on loss experience of the insured or of a group of insureds. Low losses results in higher dividends. Under most state laws insurers cannot guarantee dividends.

Domestic See Residence Employee

Domestic Insurer An insurer domiciled in a state in which the insured’s insurance is written.

Earned Premium Premium used in an insurance policy. In workers’ compensation, premium is earned as the employer incurs payroll expense.

Employers’ Liability The second part of workers’ compensation insurance policies. Provides protection from liabilities that arise out of the employment relationship but are not covered by workers’ compensation. For example, a spouse of an employee who becomes ill because of chemical residues brought home on employee’s clothing.

Employment Classification The job code or description used to categorize employees and exposures.

ERM-14 A form used to determine the ownership of related companies for the purpose of blending an experience modification so two or more insurance companies share a mod.

Estimated Premium Premiums determined at the beginning of a policy period based upon estimated payrolls. The insured pays for the policy based upon the estimated premiums then the audit determines the final premium

Excess Loss Premium Factor A part of retrospective rating programs. A factor to compensate the insurer for limiting the effects of losses over a certain amount, $50,000 for example.

Excess Losses Part of the experience modification calculation. The amount of a loss that exceeds $5,000. See also Primary Losses.

Exclusive Agent See Captive Agent

Experience Modification Factor A premium adjustment factor based upon the losses of a risk compared to losses of similar organizations. A ratio of expected losses to actual losses. Calculated by rating bureaus such as NCCI.

Experience Period Policy and claim periods used in the experience modification. Usually the oldest three of the past four years.

2008 mod is based on the claims and payrolls for policy years 2006, 2005 and 2004.

Exposure A vulnerability to loss.

Exposure Basis A unit of measuring exposure. In workers’ compensation the exposure basis is remuneration. In the case of some rates for domestic help the unit may be per employee.

Federal Employees Compensation Act Workers’ compensation act for federal civilian government employees. Overseen by the US government. Does not involve private insurers or state funds.

Federal Employers Liability Act (FELA) Applies to railway workers who are exempt from workers’ compensation statues. Cases decided on the basis of employers’ liability.

Fellow Servant Rule Archaic term used as a common law defense for employers prior to workers’ compensation laws. Held that employer was not liable for injuries to an employee if the injury was caused by a fellow employee.

Foreign Insurer An insurer domiciled in a state other than the one in which the insured’s insurance is written.

Form The contract of insurance that outlines terms and conditions of protection.

Governing Classification The employment class with the highest remuneration on a policy except for standard exception classifications.

Group Self Insurance Many employers banding together to insure their operations based on a pooling of exposures and risks. They become an insurer. Groups can be homogeneous (a plumbers’ workers’ compensation group) or heterogeneous (a plumber, a lumber yard and a manufacturer band together).

Guaranteed Cost A workers’ compensation program that is not subject to adjustments in premiums based on losses. Guarantee cost programs do include audits, and premiums are adjusted based on changes to remuneration

Hazard A situation that presents a chance of loss or an increase in the severity of a potential loss.

Incurred Losses The total of amounts paid and amounts reserved.

Indemnity Lost time payments. As opposed to medical bills.

Injury Code From the experience modification worksheet. Indicates the type of loss.

Code 1 = Death

Code 2 = Permanent total disability

Code 5 = Temporary total or temporary partial disability

Code 6 = Medical only

Code 7 = Contract medical or hospital allowance

Code 9 = Permanent partial disability

The impact of medical only claims is reduced by 30% in many states.

Insurance Adjuster The person who manages the claim process for the insurance company. May be an employee of the insurer or a contractor hired by the insurer.

Interstate Rating An experience modification that includes payroll and loss information from more than one state. Several states do not participate in interstate rating plans.

Jones Act Federal law that makes ship crews eligible for federal workers’ compensation.

Longshoremen’s and Harbor Workers’ Act See United States Longshoremen & Harbor Workers’ Act

Loss An accident or event that causes damage, injury, or illness.

Loss Adjustment Expenses Monies spent to investigate and settle losses.

Loss Control Practices and procedures used to minimize the severity of a loss. Also used to describe loss prevention activities.

Loss Prevention Practices and procedures used to keep accidents from happening. Prevents frequency of loss. Also used to describe loss control activities.

Loss Ratio Incurred losses (and loss adjustment expenses) divided by net premiums earned. Measures profitability. A measure of losses compared to premiums.

Loss Reserves Estimated amounts for future payments of medical and wage payments for a specific claim.

Loss Run A record of losses for a policy period.

Lost Wages Amounts paid for wages lost by an employee due to a workers’ compensation claim.

Manual Premium Calculated by multiplying payroll by rate before applying any modification factors, schedule credits or debits.

Maximum Retrospective Premium See Retrospective Rating

Medical-Only Claims Claims where there are no lost time/wages.

Merit Rating A credit applied in some states for accounts too small for an experience modification (under $4,500 in most cases) to adjust for a good or bad individual loss record.

Minimum Retrospective Premium See Retrospective Rating

Mod See Experience Modification

Modified Premium The workers’ compensation premium after the application of the experience modification but before other credits/debits are applied.

Monopolistic A state workers’ compensation system where no private insurers are allowed to compete for business.

Mutual Insurance Companies An insurance company owned by policyholders as opposed to stockholders.

National Association of Insurance Commissioners (NAIC) Association of state insurance regulators who administer state insurance rules and laws. NCCI promotes uniformity in regulation throughout the country.

NCCI The National Council on Compensation Insurance is the organization responsible in most states for administering classifications, experience modification factors, and collecting data used in ratemaking. NCCI is not connected with any state government. It is a rate and rulemaking organization funded by insurance companies that use their services. They report information to states and are certainly regulated by state insurance departments. It is not, however, a government run organization. It does act like one sometimes though.

Net Premium Premiums after all fees, charges and credits.

NOC See Not Otherwise Classified

Not Otherwise Classified A term used in the SCOPES classification manual and other rule books to indicate employment classifications that are not included in other class descriptions.

Occupational Disease An illness or disease arising out of a work hazard or condition.

Occupational Hazard A condition in a job or work environment that increases the peril of accident, sickness, or death.

OD Occupational Disease

Other States The section of the policy that describes how coverage will apply outside of the states listed in the classification page of your policy.

Partial Disability Impairment of a part of the body. May be permanent or temporary.

Payroll Audit An examination of employer records to determine final remuneration in individual employment classifications for the purpose of determining policy premium. Performed by an auditor.

Perfect Mod The experience modification you would have if you had no losses.

Permanent Partial Disability Partial impairment of a part of the body that is not reversible and will not heal. Amputation of a finger for example. May not impair work capacity for certain occupations. May remove an employee from the current occupation.

Permanent Total Disability Total loss of work capacity that is not reversible or will not heal.

Personal Lines Insurance coverage in property and casualty insurance for families and households. Personal auto coverage and homeowner’s insurance for example.

Pool See Assigned Risk Plan

Premium The price of insurance for a specified risk for a specified period of time.

Premium Auditor An individual who performs the audit of remuneration at the end of a policy period. May be an employee of the insurance company or a contractor hired by the insurance company.

Premium Discount A premium credit based on the size of the premium paid.

Primary Losses Part of the experience modification calculation. The first $5,000 of any loss. See also Excess Losses.

Rating Bureau An organization that compiles statistical and rate making information to determine premiums. See NCCI. Non-NCCI states have their own rating bureaus. See the Appendix of this document for a listing of NCCI states and the regulatory agencies for workers’ compensation in each state.

Rehabilitation Benefits Benefits payable to return an injured worker to work after a work related injury or illness.

Reinsurance Insurance purchased by insurance companies to provide a risk transfer mechanism. Also used by self insurers and self insured groups.

Remuneration Payroll and other compensation paid to employees. Used to calculate premiums. See the Appendix of this document for the full definition.

Renewal The reestablishment of an insurance policy after the expiration of a prior term of coverage.

Reserve Amount expected to be paid on a claim that is not resolved or closed.

Residence Employee A person who performs full- or part-time household services.

Residual Market See Assigned Risk Plan

Retention A risk held by the insured. Sometimes used as a synonym for deductible.

Retention Plan A loss-sensitive insurance plan that adjusts the premium up or down based on losses and associated costs.

Retrospective Rating A loss-sensitive workers’ compensation insurance program where adjustments are made to premiums after policy expiration. Adjustments can go up or down subject to premium minimums and maximums.

Risk Management The process of addressing in a systematic way the hazards and exposures of an organization. Risks can be avoided, reduced, transferred and retained.

Insurance transfers the risk (or a part of it) to an insurance company.

Schedule Credit/Debit Premium adjustment factors applied at the discretion of insurance company underwriters based upon individual characteristics of the risk. Issues such as managed care, quality of management, loss control efforts and insurance company appetite are included.

Scopes Manual A publication of NCCI that outlines the definitions of the 600 plus employment classifications.

Second Injury Fund A mechanism set up by states to minimize the impact of re-injuries. The theory is that employers will be reluctant to hire previously injured workers without such a system.

Sometimes funded by surcharges on insurers for death claims where there are low medical bills.

Self Insurance Retention of the risk usually in a formal, calculated way. In workers’ compensation, state regulations impose financial and administrative qualifications.

Short Rate Penalty A penalty assessed when an insurance policy is cancelled by the insured in the middle of a policy period. Workers’ compensation short rate penalties are high in the early months and gradually decline through the policy period. Short rate penalties in other property and casualty policies are usually 10% of the unearned premium

Sliding Scale Dividend A dividend plan that varies the size of the dividend payment based on the loss ratio of the insured.

Sole Remedy Workers’ compensation is said to be the sole remedy for an employee’s workplace injuries. In most states employees may not seek payment from employers outside of workers’ compensation for an employer’s negligence or liability for an injury.

Standard Exception Classifications Employment classifications that are allowed on most policies in addition to the primary business classes.

Clerical, Sales and Driver are common standard exceptions.

Standard Premium Premium after application of the experience modifier and schedule credits or debits, but before premium discount.

State Fund A workers’ compensation system run by a state. May be competitive with private insurers or monopolistic. Also synonymous with assigned risk fund or pool.

Statewide Average Weekly Wage (SAWW) See Average Weekly Wage

Subrogation The procedure under which an insurance company recoups losses paid from the insurer of the negligent or responsible party. A workers’ compensation insurer may, for example, subrogate against the auto insurer of the driver who caused an accident in which an employee was injured.

Tax Factor (or Tax Multiplier) A factor applied in retrospective rating for state premium taxes.

Temporary Partial Disability A condition where an injured worker’s capacity is impaired for a time, but he is able to continue working at reduced capacity. Full recovery is expected.

Temporary Total Disability A condition where an injured worker is unable to work at all while he is recovering from injury. Full recovery is expected.

Underwriter The individual who performs underwriting for an insurance company.

Underwriting The process an insurance company goes through to classify, analyze and price an insurance policy.

Unearned Premium The difference between the premium paid and the earned premium.

Unit Stat Card A form filed with a rating bureau by an insurance company to report remuneration and losses on a specific policy. Used to calculate the experience modification. Usually submitted based on losses shown at the six month point in a policy.

United States Longshoremen & Harbor Workers’ Act Federal workers’ compensation law that stipulates compensation for those who work in harbors and on wharves.

USL&H See United States Longshoreman’s and Harbor Workers’ Act

Voluntary Compensation An endorsement to the standard Workers’ Compensation insurance policy which extends coverage to employees not required to be covered under the state’s workers’ compensation law. Farm workers, domestic help, and business owners, for example. Usually has nothing to do with volunteers. The term refers to the voluntary addition of normally uncovered individuals.

Voluntary Market Insurance written outside of any assigned risk plan.

WC Workers’ Compensation

Workers’ Compensation 1. A state mandated program of benefits for injured workers.

2. An insurance policy designed to provide benefits based on a state’s workers’ compensation law.

Workers’ Compensation Score An employer’s perfect mod divided by the actual experience mod multiplied by 1000. The result is a score similar to a batting average.