A retro workers’ compensation policy, also known as a retrospective rating plan, is a complicated program based on actual losses and a rating method. Calculating a retro plan premium can be difficult, and the process is different from regular workers’ compensation.
The employer offering this type of policy may reduce costs by using it, but there are pros and cons for both employers and employees. Before accepting this compensation premium, knowing all aspects of this type of plan is important. Learn if it benefits you from our Atlanta workers’ compensation lawyers.
How a Retro Workers’ Compensation Policy Works
A retrospective insurance policy depends on losses that the insured experiences during their policy period:
- The insured person initially pays a standard premium based on what their losses are expected to be.
- Then, once the policy period is over, the retro premium is adjusted (increased or decreased) to match the insured individual’s actual losses.
- A mathematical formula calculates a minimum and maximum premium, determining the least and most an employer will pay on a policy.
Retrospective rating in workers’ compensation is an alternative to guaranteed cost. When insurance is based on guaranteed cost, the premium is not affected by the number of claims a worker makes (or how large their claims are) during their policy period.
A guaranteed cost policy may undergo an experience rating, which adjusts the insured’s future premiums based on previous policy periods. In contrast, retro ratings make adjustments based on the current policy period.
Calculation Breakdown of the Retro Premium
The insurance carrier will combine the basic premium (the insurer’s costs to issue and maintain the policy) with the converted losses (expenses of claim adjustments and payments made by the insurer) and multiply it by a “tax multiplier.”
This calculation of premium factors may result in the official retro premium, or additional factors might be added to the total if the plan includes loss limits. It will also depend on the company’s minimum and maximum premiums.
If the retro premium is calculated and ends up being less than the minimum premium, it would become the minimum since it cannot be lower. The same goes for a calculation that is more than the maximum premium. The retro premium amount must follow the minimum and maximum parameters.
When Retro Workers’ Comp Plans Are Adjusted
Retro workers’ compensation policies are periodically adjusted. Typically, the first adjustment is required six months after the policy’s expiration, then another 12 months later, and a year after that. This allows the insurer to re-evaluate losses and recalculate the premium.
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Types of Retro Workers’ Compensation Plans
There are various types of retrospective rating plans, including:
- Incurred Loss
- Paid Loss
- Depressed Payroll
The two most common are Paid Loss and Incurred Loss retro plans.
Paid Loss plans are pricey and typically only used for large clients who can pay premiums above $1,000,000. On the other hand, Incurred Loss plans are much more affordable to set up and the most popular.
Pros and Cons of Retrospective Ratings in Workers’ Compensation
There are certainly potential advantages to a retro workers’ compensation policy, although the pros are mostly focused on the businesses that purchase the policy:
- A business with a low loss experience level may pay less for its workers’ compensation insurance versus the guaranteed cost policy model.
- Through a retro plan that is adjusted so often, policyholders have a higher incentive to control their loss conversion factor and help get injured workers back to work.
- The business can also expect to pay a premium more closely correlated with its actual losses for the current policy period.
The main con of a retro workers’ compensation policy is the risk of losing money. If the business’s losses are much higher than expected, they will face a larger additional premium adjustment. There is a risk of higher fluctuations compared to guaranteed cost workers’ comp.
Employers can also face issues if their accounting team does not understand retro policies and plans well. Poorly run retrospective-plan claims can lead to higher costs.
Requirements for Retro Workers’ Compensation
The exact qualifications for retro workers’ comp plans can vary per state. In Georgia, retrospective rating plans are available for employers through the National Council on Compensation Insurance (NCCI) with an assigned risk workers’ comp insurance premium of at least $250,000.
These plans are known as Loss Sensitive Rating Plans (LSRP) and are meant to act as a “last resort” for employers who must obtain workers’ compensation insurance but cannot provide it through other outlets. It must compare with other alternatives regarding claims experience, loss data, and projections.
Processing Time for a Retro Workers’ Compensation Plan
Delays in the Retro Workers’ Compensation process can stem from various factors, including the involvement of insurance companies and the intricacies of the complex insurance program.
Sometimes, medical treatment necessitates multiple visits, consultations, and assessments, extending the process. Thorough documentation, such as medical records and accident reports, is time-consuming but crucial to avoid delays.
The insurance company reviews involve additional information requests, investigations, and multiple opinions, further lengthening the process.
Compensation Claim Conflicts
Disputes over liability, injury extent, or compensation amounts necessitate negotiations, potentially involving evidence, expert opinions, or mediation for resolution.
Due to high caseloads and limited resources within the workers’ compensation system, administrative backlogs can slow processing times. Complex cases may require legal procedures like hearings or trials, adding to the delays.
Effective communication and collaboration with the claims team can expedite decision-making and ensure proper compensation. Working with lawyers familiar with claim payment processes can streamline and eliminate general workers’ comp questions.
Talk to a Georgia Workers’ Compensation Lawyer for Free Today
Retro workers’ comp policies can be complex. They can have advantages for employers, but we focus on how each policy affects injured workers and their workers’ comp claims. If you have questions about your employer’s workers’ comp policy, John Foy & Associates can help.
Our Georgia workers’ comp lawyers have been helping injured workers get the benefits they need for over 20 years. We know that insurers (and employers) often look for ways to reduce what they pay out on workers’ comp claims. We also know it is your legal right to be given fair benefits after an injury.
Contact workers’ compensation attorneys at our firm today, and we’ll give you a FREE consultation to discuss your situation and your best options. Plus, working with us is risk-free: we don’t take a single fee from you unless we win you money.