Like any business, insurance companies want to know if they can make money when a policy is written. An insurance company will price a policy based on the underwriter's interpretation of the data presented to them through the agent and application for insurance. This is why it is essential to have an agent that can showcase all the great things about you, your employees, and your facilities.
When considering writing policies an insurance company thinks about more than just the cost of potential claims. They weigh the plethora of direct expenses, indirect expenses, and political environment, as well as additional factors such as the macroeconomy.
ADDITIONAL CONSIDERATIONS MAY INCLUDE:
Are there enough resources in a particular area to support a proactive relationship with the policyholders? (i.e. Loss Control Staff or Claims Adjusters, etc.)
What is occurring in the market overall? Does the insurance carrier have an opportunity to invest surplus and earn a reasonable rate of return?
How well the insurance company has performed. Did the company make money in the past? (Particularly in the industry being considered.)
Information obtained from rating bureaus such as NCCI and other economic trend factors such as medical inflation, etc.
The employer's understanding of how to administer the Workers' Compensation policy.
Legislative initiatives, such as additional benefit schedules for workers or reform, etc.
The condition of workforce health problems, such as obesity.
An employer's apathy toward Workers' Compensation claim results.
Legal climate or adverse court decisions in certain venues.
Unusual or unanticipated legal judgments.
Age of workforce.
New regulations.
Inflation rates.
CONCLUSION:
The method of developing premiums and calculations is a rather scientific process. As you can see from the expenses and other considerations listed above, there is a lot to consider when an insurance company writes a policy. Perhaps most importantly, the policyholder's past claims experience is the chief consideration. In the mind of an insurance underwriter, the past is a predictor of the future and the future will become the past.
The impact of past claims experience and the factors of Policy Premium Development will be explored in upcoming blogs.
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