A.M. Best Company

Founded in 1899, A.M. Best Company. is a full-service credit rating organization dedicated to serving the insurance industry.  The organization rates insurance companies based on their financial condition and operating performance.

Accident Year

The year in which an injury occurred.

Accident Year Data

A method of arranging loss and exposure data of an insurer or group of insurers or within a book of business, so that all losses associated with accidents occurring within a given calendar year and all premium earned during that same calendar year are compared. Thus, regardless of individual policy periods and regardless of when a loss is reported or is paid, accident year data 2015 will include all premiums earned during 2015 and will include all losses occurring in 2015. Rate-making organizations use both accident year data and policy year data in their analyses of rate adequacy. For example, workers compensation loss development factors (LDFs) promulgated by the National Council on Compensation Insurance (NCCI) are developed from accident year data.

Accident Year Experience

The accident year is any 12-month period for which losses from incidents taking place during that 12-month period are tracked. Accident year experience is calculated by adding the total losses from any incidents occurring in that 12-month period. Two other cost accounting terms used in sorting loss experience are calendar year and policy (underwriting) year.

Accident Year Losses

The losses that occurred during an accident year. Accident year losses for a given year change as claims develop.

Accident Year Premium

The combined premium that is attributed to the accident year. Accident year premium for a given year changes as premium adjusts in subsequent years. Accident year premium includes the pro rata portion of premium activity for the accident year.

Activities of Daily Living

Bathing, preparing and eating meals, moving from room to room, getting into and out of beds or chairs, dressing, using a toilet.


A person who compiles and analyzes statistics and uses them to calculate insurance risks and premiums.


One who settles insurance claims. This typically involves investigation of the loss and a determination of the extent of coverage. Adjusters may be employees of the insurer (staff adjusters) or of independent adjusting bureaus (independent adjusters) that represent insurers and self-insureds on a contract basis. Public adjusters are consultants who specialize in assisting insureds in presenting claims to insurance companies in a manner that will maximize their recovery.


The process of settling a claim. The settlement process includes evaluating the cause and amount of a loss, determining coverage and payment of any proceeds required under an insurance policy.

Adjusting and Other Expenses (A&O)

The loss adjustment expenses that are not related to the defense, litigation, or cost containment of a claim. Includes the cost of adjusters. Also includes the cost of inspectors, appraisers, fraud inspectors, while working in the capacity of an adjuster.

Administrative Services Organization

A third party firm that provides certain outsourced human resources services such as payroll and tax filings. These are similar to PEOs (Professional Employer Organizations) but with a key difference: an ASO does not provide Workers Compensation coverage to clients on a blanket bases as a PEO does. An ASO may offer Workers Compensation coverage to clients on an individual basis, particularly via so-called “Pay As You Go” programs.

Adjusting and Other Expenses (A&O)

The loss adjustment expenses that are not related to the defense, litigation, or cost containment of a claim. Includes the cost of adjusters. Also includes the cost of inspectors, appraisers, fraud inspectors, while working in the capacity of an adjuster.

Advisory Organization

An organization that provides advisory rules and rates for the Insurance Industry.


An individual authorized to represent an insurance company to sell insurance. A direct agent sells exclusively for one insurance company. An independent agent represents two or more insurance companies.

Agent of Record

The individual or company authorized to represent an insured in the purchase, servicing, and maintenance of insurance coverage with a designated insurer. Most insurance companies will not disclose any information or discuss an insured's account with any agent other than the agent of record. An insured wishing to change insurance agents must submit a revised agent of record letter to the insurer authorizing them to release the insured's information and to discuss the insured's coverage with the new agent.

Allocated Loss Expenses (ALE)

Insurance company costs for adjusting and settling claims which can be identified with a specific claim. The ALE are often then included in the claims costs used to adjust premium in some loss-sensitive premium adjustment types of workers’ comp policies, such as sliding scale dividend plans or some retro- or retention plans.

American Medical Association (AMA)

A national physician's group. The AMA publishes a set of guidelines called "Guides to the Evaluation of Permanent Impairment."

Americans With Disabilities Act (ADA)

A federal law that prohibits discrimination against people with disabilities.

Anniversary Rating Date (ARD)

The date that is used to determining the effective rates on a policy. The date is usually the effective date of the policy, unless the rating board establishes a different date.

Annual Statement

The annual report that an insurance company is required to file with the state insurance department, in each state in which they do business. The report is compiled using statutory accounting principles (SAP) by using forms designed by the NAIC. The report provides information needed to assure that an insurance company has adequate reserves, and that the assets are available to meet all benefit payments for which they are liable.

Arising Out of Employment (AOE)

An injury, disease or medical condition must meet the test of both Arising Out of Employment and occurring during the Course Of Employment to be compensable (covered) under Workers Compensation law. For an injury to be eligible for Workers Compensation benefits, the injured party must be an employee/volunteer; the employee/volunteer must be engaged in job activities at the time of injury and job activities must be a proximate cause of the injury.


A way of figuring out how much of a permanent disability is due to a work injury and how much is due to other disabilities.

Assigned Risk Adjustment Program (ARAP)

This program was developed to collect additional premium from experience rated assigned risk employers with less favorable loss experience under NCCI’s Experience

Rating Plan Manual. The result requires them to share in the underwriting losses of the residual market by applying an ARAP surcharge factor, which may result in an increase in assigned risk premium.

Assigned Risk Plan

A state designated program that ensures all employers can have access to workers' compensation insurance even if insurance companies are not willing to voluntarily write the insurance. Often the last resort option for companies with poor experience ratings. Assigned risk plans usually have higher rates than the voluntary market.


An audit is an examination of your operation, records and books of account to discover your actual insurance exposure for a specific period of time coverage was provided. 

Audited Premium

The final premium for the term of the policy, calculated by auditing actual payroll values for the type of work being performed.

Audit Worksheet

The document, whether electronic or written, that shows how the auditor arrived at the final payroll numbers that are used to determine the audited premium.

Average Daily Wage (ADW)

A calculation of an injured worker's average daily earnings. This term is sometimes used to determine entitlement to wage loss benefits following an injury.

Average Weekly Wage (AWW)

A similar calculation to the ADW in determining the entitlement to wage loss benefits by week for a fixed period of time.

Basic Premium

A percentage of the standard premium used in calculating the premium of a retrospectively rated policy. Basic Premium is the portion of the retrospective premium that is loaded to reflect a policy's expected overhead cost and profit.


Monetary payments and other services provided by insurers under the terms of an insurance policy.

Bulk Reserves

An additional amount added to reserves to account for claim development that has not been included in the case reserves.  Bulk reserves cannot be attributed to any individual claims, but are an adjustment related to all outstanding claims.

Calendar Year Experience

The matching of calendar year losses with calendar year premium. Calendar year experience does not change as losses develop and premium finalizes.

Calendar Year Losses

The combined losses that occurred during a calendar year. Calendar year losses do not change as claims develop in subsequent years. Calendar year losses include claim activity for the current year claims and additional claim activity for prior year claims that occurred during a given calendar year.

Calendar Year Premium

The combined premium that transpired during a calendar year. Calendar year premium, for a given year, does not change as premium adjusts in subsequent years. Calendar year premium includes premium activity for the current calendar year only, regardless of the policy period.


The termination of an insurance policy before its expiration date by either the insurance company or the policyholder.

Carrier of Last Resort

The insurance company designated to accept a policyholder after the policyholder has been refused coverage by all other insurance companies. The Carrier of Last Resort is usually a state fund. Not applicable in monopolistic states and in states that have assigned risk pools.

Carve-Out (PEO Workers’ Compensation Policy)

A hybrid PEO arrangement where the employers maintains their own workers’ compensation policy and does not obtain coverage through the PEO workers’ compensation master policy.

Case Management

A system of coordinating medical services to treat a patient, improve care and reduce cost. A case manager coordinates health care delivery for patients.

Centers for Medicare and Medicaid Services (CMS)

The federal government agency that oversees the Medicare and Medicaid programs.

Certificate of Insurance

A certificate of insurance is a document used to provide information on specific insurance coverage. The certificate provides verification of the insurance and usually contains information on types and limits of coverage, insurance company, policy number, named insured, and the policies' effective periods.


A demand made by the insured, or the insured's beneficiary, for payment of the benefits as provided by the policy.


An individual who submits a claim to an insurance company for an incurred loss.

Claims Outstanding (or Claims Pending)

The total number of open claims at any given time.

Claims Reserve

The reserves attributed to an individual outstanding claim. Claims Reserves are equal to total incurred less net payments.

Claims Severity

The average cost per claim. Severity can be based on accident year or policy year, for an individual policy, a group of policies or all policies.

Class Codes

A numerical index by type of business operations used in grouping similar type of risks for rating purposes. The Class Codes are designed so that businesses with similar characteristics are charged the same rate. The NCCI develops and maintains the class codes for workers' compensation insurance.

Collected Premium

The amount of premium that has actually been received as payment.

Combined Ratio

The sum of the loss ratio and expense ratio. The combined ratio indicates whether an insurance company is making a profit on the business it is writing, without taking into account the investment returns on the premium received.

Coverage A

A workers' compensation policy agreement under which an insurance company promises to pay all compensation and all benefits required of an insured employer under the workers' compensation act of the state or states listed on the policy.

Coverage B

Coverage under a workers' compensation policy for situations in which an employee not covered under workers' compensation law could sue for injuries suffered under common law liability.

Cumulative Injury

An injury that was caused by repeated events or repeated exposures at work. For example, hurting your wrist doing the same motion over and over or losing your hearing because of constant loud noise.


In the Experience Modification factor calculation, this is a factor applied to the expected losses to determine what percentage of those expected losses are to be considered as primary losses within the rating formula.

Date of Hire

The date the injured employee was hired.

Date of Injury

The date of the accident that caused the injury.

Death Benefits

Benefits paid to surviving dependents when a work injury or illness results in death.

Declarations Page

The portion of a policy describing a risk. Includes the insured's name and address, policy term, policy premium, and amount of coverage.


The amount of loss that the policyholder pays in a claim. The policyholder is liable to pay the deductible before the insurance company is obligated to pay the claim. The policyholder receives a discount by adding the deductible to the policy. The higher the deductible, the lower the premium.

Defense and Cost Containment Expenses (D&CC)

The loss adjustment expenses that are related to the defense, litigation, or cost containment of a claim. Includes surveillance, appraisers, private investigators, and fraud investigators, if working in defense of a claim. Also includes rehabilitation nurses and the cost of engaging experts.

Direct Writer

An insurance company that does not work through independent insurance agents. The largest direct writer of workers’ compensation insurance is Liberty Mutual. Agents for direct writers are employees of the insurance company.


A physical or mental impairment that limits your life activities. A condition that makes engaging in physical, social and work activities difficult.

Disability Management

A process to prevent disability from occurring or to intervene early, following the start of a disability, to encourage and support continued employment.


The return of part of the policy's premium for a policy issued on a participating basis by either a mutual or stock insurer.

Earned Premium

The portion of written premium applicable to the expired portion of the policy term for which the insurance was in effect.

Effective Date

The date coverage begins on an insurance policy.

Employee (EE)

A person whose work activities are under the control of an individual or entity. The term employee includes undocumented workers and minors.

Employee Leasing

Arrangement in which a business transfers its employees to a leasing company which specializes in human resource management, payroll accounting, and risk administration. The business then leases its employees back as employees of the leasing company and usually pays more for their services than their salaries at the time of transfer.

Employer (ER)

The person or entity with control over your work activities.

Employer's First Report of Injury

A report that an employer is required to file with its workers' compensation carrier when one of its employees is injured while working.

Employers Liability

This coverage provided by Section B of the workers compensation policy provides coverage to the insured (employer) for liability to employees for work-related bodily injury or disease, other than liability imposed on the insured by a workers compensation law.


A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Modifications to coverage during the policy period are “endorsed” on to the existing policy.


The study of how to improve the fit between the physical demands of the workplace and the employees who perform the work. That means considering the variability in human capabilities when selecting, designing or modifying equipment, tools, work tasks and the work environment.

Essential Functions

Duties considered crucial to the job you want or have. When being considered for alternative work, you must have both the physical and mental qualifications to fulfill the job's essential functions.

Estimated Premium

The premium on a term policy calculated using estimated payroll exposure. Estimated premium is the policy premium prior to the final premium calculation based on the audit.

Excess Losses

In the Experience Modification Factor, this is the amount of any single claim that exceeds the cut-off point for inclusion as a primary loss. In the NCCI experience rating formula, this threshold is $5,000.  In the formulas used by other rating bureaus, the threshold varies.

Expense Constant

The Expense Constant is a flat charge added to every workers' compensation policy and represents the common administrative expenses associated with the issuing and administering of a policy.

Expense Ratio

The percentage of premium used to pay for the acquisition, writing, and servicing of a policy. The expense ratio is equal to underwriting expenses divided by written premium. The expense ratio shows how much it costs the insurance company to write the premiums.

Experience Modification Factor

An adjustment to Manual Premium, calculated by an advisory organization, such as NCCI, based on historic loss and payroll data of a particular insured.

Experience Period

The window of time for loss and payroll data used to calculate an experience modification factor for an employer. Traditionally a three-year period, starting four years prior to the effective date of the experience modifier. Rating bureaus may not wait until three years before establishing an experience rating for an employer. If an employer reaches a certain, relatively low threshold of workers' compensation insurance premiums in any one of the three years in the experience period the employer is eligible for experience rating. Each state has different thresholds for premium amounts before a company is eligible for experience rating.

Expiration Date

The date coverage ends on an insurance policy.


Being subject to the possibility of a loss.


A provision in workers' compensation insurance law that extends protection to an employee that is injured in a state other than his state of hire.

Fair Employment and Housing Act (FEHA)

A state law that prohibits discrimination against people with disabilities.

Family and Medical Leave Act (FMLA)

A federal law that provides certain employees with serious health problems or who need to care for a child or other family member with up to 12 weeks of unpaid, job-protected leave per year. It also requires that group health benefits be maintained during the leave.

Final Premium

The premium on a term policy calculated using actual payroll exposure. Final Premium is calculated after the policy has expired and an audit has been performed.

First Report of Injury (FROI)

This is the state mandated claim report form which gives the details of the claim — the employee’s identifying information, the employers identifying information, the details of the injury, and the information on the initial medical provider.



Any knowingly false or fraudulent statement for the purpose of obtaining or denying workers' compensation benefits. The penalties for committing workers' compensation fraud are third degree felony charges, imprisonment for up to five years and $5,000. in fines.


The number of claims occurring. Frequency can be based on accident year or policy year, for an individual policy, a group of policies, or all policies.

Functional Capacity Evaluation (FCE)

A type of testing that measures an employee's ability to perform various physical functions including lifting, twisting, bending, range of motion, etc.

Future Medical

On-going right to medical treatment for a work-related injury.

Florida Workers' Compensation Joint Underwriting Association, Inc. (FWCJUA)

The market of last resort for insureds in the State of Florida.  

Governing Classification

The classification (other than a standard exception) that best describes the workers compensation exposure of an employer's business.  This is also normally the classification that contains the largest amount of payroll.


Guaranteed Cost

A Workers’ Compensation insurance policy that is not subject to adjustment due to losses that occur during the policy term. In a guaranteed cost policy, the only variable affecting premium that should change between policy inception and audit is the amount of payroll incurred.


Legal proceedings in which a workers' compensation judge discusses the issues in a case or receives information in order to make a decision about a dispute or a proposed settlement.

Impairment Rating

A rating established by a claimant's physician that quantifies a claimant's physical disability. The Impairment Rating is determined by medical examinations, using American Medical Association (ADA) guidelines. Individual states may have additional guidelines that supercede the ADA guidelines. The impairment rating reflects the percentage of a claimant's whole body impairment.