Loss Cost Multiplier

Looking for information about the loss cost multiplier (LCM) pertaining to workers compensation insurance rates? See below for the definition, formula, and a list of loss cost multipliers by company. Use this page to calculate the manual rates of various insurance companies.

Loss Cost Multiplier Definition:

What is a loss cost multiplier (LCM)? The two most important factors in calculating manual insurance rates are the loss costs, and the loss cost multipliers. Loss costs reflects the medical losses caused by a claim (Medical care, lost wages, prescriptions, etc.), while the loss cost multiplier reflects the overhead cost for that claim.

Loss costs are established as an industry average by the National Council on Compensation Insurance (NCCI) for most states. However, loss costs multipliers are established by each individual insurance company. Insurance company’s need to calculate their own unique overhead expense (LCM) for workers compensation claims. Some of these costs include salaries of workers, rent, utilities, software, etc.

Loss Cost Multiplier Formula

Below is the formula that insurance companies use to calculate their unique base rate for each of their class code coverages:

Rate = Loss Cost (Published by NCCI) * Loss Cost Multiplier (LCM)

Example: If an insurance company (A) has a loss cost multiplier of 1.250 while another insurance company (B) has a loss cost multiplier of 1.500, the class code for insurance company B will cost 20 percent more than company A.

Lets assume that NCCI calculated a base loss cost for a carpentry class code at 5.62, and the business has an annual payroll of $60,000:

Insurance company A would charge 5.62 X 1.250 = 7.025 X 600 (per $100 of payroll) = $4,215 (base premium) Company B would charge 5.62 X 1.500 = 8.430 X 600 (per $100 of payroll) = $5,058 (base premium)

Be aware that there are several other factors that may be applied to the manual rates, such as experience modifications, prior to estimating the actual policy premium. 

Where to find loss costs by state:

ISO (Insurance Services Organization, Inc) is the rating organization responsible for publishing and distributing LCM by state for auto liability and general liability. You can purchase analytical data such at this by visiting their website at: https://www.verisk.com/iso.html.

NCCI (National Council on Compensation Insurance) is the rating organization responsible for publishing and distributing loss costs by state and class code. You can view this analytical data for free by visiting https://www.ncci.com/ and signing up for the Risk Workstation.

Loss Cost Multiplier list by Company:

You can find this list periodically updated by several state insurance websites, such as:

• https://insurance.mo.gov/consumers/wc/documents/WorkersCompLossCostMultipliers9-30-14.pdf
• https://www.ksinsurance.org/industry/company/lcm.php
• https://www.nh.gov/insurance/pc/workerscomp/documents/wc_lc_multipl.pdf

Loss Cost Multiplier