Glossary:

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.

Actuary

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

Adjuster

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.

Adjustment

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.

Agent

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.

Apportionment

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.

Audit

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.

Benefits

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.

Cancellation

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.

Claim

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

Claimant

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.

D-Ratio

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.

Deductible

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.

Disability

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.

Dividend

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.

Endorsement

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.

Ergonomics

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.

Exposure

Being subject to the possibility of a loss.

Extraterritoriality

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.

 

Fraud

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.

Frequency

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.

Hearings

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.

Incurred Losses

Paid losses plus additional loss reserves for anticipated future claims. 

Indemnity Claim

A claim which includes payments and reserves for lost wages and medical expenses. Indemnity claims occur when an injured worker is out of work long enough to receive compensation for lost wages.

Independent Contractor

An individual who does a job for another individual, or company, according to a contract and is not an employee of the individual, or company. An independent contractor has significantly more direction and control of how the work is completed, than an employee would have.

Independent Medical Examination (IME)

An examination of an injured worker by a physician selected by the insurance company. Independent Medical Examinations are usually done to determine the appropriateness of a course of treatment, or to provide an evaluation of permanent impairment.

Insurance

The transfer of risk from one party (insured) to another party (insurer), in which the insurer promises to pay the insured (or others on behalf of the insured) an amount of money, or service, for losses sustained from an unexpected event, during a period of time for which the insured makes a premium payment to the insurer.

Insurance Commissioner

The official of a state charged with the duty of enforcing its insurance laws. Also called the superintendent of insurance and director of insurance.

Insured

The person or party protected by an insurance policy.

Insurer

The insurance company or other organization providing insurance coverage and services to an insured.

Interstate Rating

An experience modification factor that applies across several states. Interstate ratings are calculated by a rating bureau (like NCCI) for employers operating in more than one stated. Most, but not all states (Michigan, Pennsylvania, and Delaware are exceptions), participate in the interstate rating system. Employers can have one experience modifier applying to their operations in most states but a separate modifier calculated by the stand-alone state rating bureau. The separate state modifier(s) apply only to workers’ compensation insurance premiums for the employer's operations in that stand-alone state.

Joint Underwriting Association (JUA)

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

 

The correct name is the Florida Workers' Compensation Joint Underwriting Association, Inc. (FWCJUA)

Light Duty (LD)

Temporary or permanent work that is physically or mentally less demanding than normal job duties.

Loss

An injury caused by an event covered by an insurance company.

Loss Adjustment Expenses (LAE)

Expenses incurred to investigate and settle losses.

Loss Control

The use of appropriate insurance, avoidance of risk, loss control, risk retention, self-insuring, and other techniques that minimize the risks of a business, individual, or organization.

Loss Conversion Factor (LCF)

A multiplier used in calculating the premium of a retrospectively rated policy to include the cost of settling claims. Incurred losses are multiplied by the loss conversion factor to obtain an amount equal to incurred losses plus loss adjustment expenses.

Loss Ratio

The ratio of incurred losses and loss-adjustment expenses to net premiums earned.

Loss Reserve

The estimated liability for unpaid insurance claims of what will ultimately be paid out on that claim.

Loss Reserve

The estimated liability for unpaid insurance claims of what will ultimately be paid out on that claim.

Loss Run

Claims reports provided by your insurance carrier that document the claim activity on your policies.

Lost Time Claim

A claim in which an injured worker is determined by a doctor to be unable to work for a period of time. These claims involve the payment of disability benefits, in addition to medical costs and other expenses.

Managed Care Organization (MCO)

A group of doctors, hospitals and other medical providers who work together to provide medical care for an injured employee at a pre-agreed reduced price.

Manual Premium

Premium calculated by multiplying the manual rates for the various class codes of a risk by the payroll exposure of the insured.  The Manual Premium is the premium before experience modification and premium discounts.

Maximum Medical Improvement (MMI)

The maximum level of medical improvement of an injured worker's condition. Once a claimant has obtained MMI, it is expected that significant improvements in the future will be minimal.

Mediation

A meeting of the parties in which a mediator acts to encourage and facilitate the resolution of disputes prior to those disputes being decided by a judge.

Medical Case Management

Professional services for the evaluation, monitoring and coordination of medical treatment of claims with specific diagnosis or requiring high-cost or extensive services.

Medical Only Claim

Claims for which the only cost is medical care, without any lost-time benefits being paid.

Medicare Secondary Payer (MSP)

A federal law that requires all future medical benefits owed under workers’ compensation to be paid by the work comp insurer and not shifted to Medicare or Medicaid.

Minimum Premium

The smallest amount of premium for which an insurer will issue coverage under a given policy.

Modified Premium

Workers’ Compensation premium calculated after application of the experience modification factor. Similar to standard premium, but does not reflect any schedule credits or debits.

Monopolistic State Fund

State operated insurance company that is the sole provider of workers' compensation insurance in a state. In these states, no other insurance companies are permitted to write workers' compensation insurance. Currently, there are five Monopolistic State Funds: North Dakota, Ohio, Washington, West Virginia and Wyoming.

Mutual Insurance Company

Companies with no capital stock, and owned by policyholders. The earnings of the company--over and above the payments of the losses, operating expenses and reserves--are the property of the policyholders. There are two types of mutual insurance companies:

 

A non-assessable mutual charges a fixed premium and the policyholders cannot be assessed further. Legal reserves and surplus are maintained to provide payment of all claims.

 

An assessable mutual is a company that charges an initial fixed premium and, if that isn't sufficient, might assess policyholders to meet losses in excess of the premiums that have been charged.

National Association of Insurance Commissioners (NAIC)

An organization of state insurance commissioners that promotes uniformity by drafting regulations and model legislation.

National Council on Compensation Insurance (NCCI)

The organization responsible in many states for determining proper Workers’ Compensation classifications, experience modification factors, and collecting data used for rate making. NCCI also writes the manuals used in many states to calculate Workers’ Compensation premiums, and also administers the Assigned Risk Plan in many jurisdictions.

 

NCCI is a private organization, not connected with government, although it is often mistakenly thought to be a governmental agency. In fact, it is a non-profit privately held corporation owned by major insurance companies, whose executives constitute a majority of the directors on NCCI’s board.

Not Otherwise Classified (NOC)

A class code term denoting that the policyholder's operations cannot be classified more specifically.

Occupational Disease

A disease arising out of and medically linked to the exposure to harmful conditions of employment.

Occupational Health

A medical specialty focusing on the health, safety and welfare of employees.

Occupational Injury

Any injury, such as a cut, fracture, sprain, amputation, etc., that results from a work-related incident.

Occupational Therapy

A form of therapy for those recuperating from physical or mental illness that encourages rehabilitation through the performance of activities required in daily life.

Owner Controlled Insurance Program (OCIP)

An insurance program written to cover large construction projects, usually exceeding $100 million in construction value. Under this program, all labor performed under the contract is covered. The program usually includes insurance policies covering workers' compensation and general liability. Also called "wrap-up" policies.

Paid Losses

The actual amount of total losses paid by an insurance company.

Permanent Disability

Any lasting disability that results in a reduced earning capacity after maximum medical improvement is reached.

Permanent Partial Disability (PPD)

An injured worker that has a permanent impairment rating of less than 100% after maximum medical improvement has been reached. Benefits for PPD are paid over a specified period of time, spending on the severity of the permanent impairment.

Permanent Total Disability (PTD)

An injured worker whose injuries have rendered him permanently unable to perform the kind of work for which he is qualified, and who cannot perform other work that is reasonably available. In most cases, benefits for PTD are paid for the remainder of the injured worker's life.

Physical Therapy

A branch of rehabilitative health that uses specially designed exercises and equipment to help patients regain or improve their physical abilities.

Physician Review Service

A group of board certified physicians who provide utilization review services and peer to peer reviews.

Policy

The written contract effecting insurance including all clause, riders, endorsements.

Policy Anniversary

The anniversary of the effective date of coverage of a policy.

Policy Period

The time period during which a policy is effective or in force.

Policy Year Losses

The combined losses on policies with a given policy year. Policy Year Losses for a given year change as claims develop. The ultimate Policy Year Losses is known once all claims that occurred during the given policy year are settled.

Policy Year Premium

The combined premium from policies with a given policy year. Policy Year Premium for a given year changes as premium adjusts in subsequent years. The ultimate Policy Year Premium is known once all premium adjustments are finalized. Policy Year Premium includes the entire premium for a policy in the policy year.

Preferred Provider (PP)

A medical provider within a MCO or PPO that has demonstrated superior medical service and medical results while returning the injured employee to work in shortest period of time

Preferred Provider Organization (PPO)

A formally organized entity consisting of hospitals, physicians, and other healthcare providers. A PPO allows insurance companies to negotiate directly for healthcare services at lower price than would normally be charged. Insurance companies recommend the PPOs they have negotiated with to the insureds.

Premium

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

Premium Audit

An examination of a policyholder's operations, books and records by a premium specialist to determine the actual insurance exposure for the coverages provided.

Premium Auditor

The premium auditor determines actual exposure (remuneration) for a policy period, in order to determine the final audited premium. The auditor typically works either directly for the insurance company, or for a third-party company retained by the insurance company.

Premium Discount

A premium credit, based on size of the premium paid. It is normally given automatically on voluntary market policies, although retrospective rating or sliding scale dividend policies usually do not have a premium discount.

Premium Refund

The premium returned to the policyholder, which is the amount of premium that has been collected over and above the final earned premium.

Primary Losses

In the experience modification factor, the first $5,000 of any single loss.

Professional Employer Organization (PEO)

A company that provides outsourced insurance benefits and human resource consulting to other companies. The insurance benefits are provided as part of a group policy. Also known as employee leasing.

Rate

The cost of a unit of insurance, workers compensation is based on per $100.00 of each dollar paid in payroll. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices or NCCI.

Rating Agencies

The six major agencies determine an insurers’ financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experience. A high financial rating is not the same as a high consumer satisfaction rating.

Rating Bureau

An organization under the jurisdiction of the Department of Insurance that classifies, analyzes manual rate, compiles statistical data and measures the hazards of individual risks.

Reinsurance

Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer’s capital and therefore its capacity to sell more coverage. Typically, reinsurers don’t pay policyholder claims, they reimburse insurers for claims paid at an attachment point sometimes referred to as a deductible. By spreading risk, the primary company is insuring its own book of business.

Remuneration

The basis for calculating Workers’ Compensation premium. Remuneration is primarily payroll, but may also include other forms of employee compensation such as bonuses, cash incentives and the monetary value of the other non-cash incentives.

Reserve

A company’s best estimate of what it will pay for expected claims.

Residual Market

Insurance market system for various lines of coverage (most often workers compensation, personal automobile liability, and property insurance). They serve as a coverage source of last resort for firms and individuals who have been rejected by voluntary market insurers. Residual markets require insurers writing specific coverage lines in a given state to assume the profits or losses accruing from insuring that state's residual risks in proportion to their share of the total voluntary market premiums written in that state.

Retrospective Rating

A workers’ compensation insurance policy that makes a subsequent adjustment to premium, after policy expiration, based on losses generated during the policy period. The adjustment can go up or down, within set parameters, based on the losses generated during the policy period.

Risk Management

The identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable risks. An organization may use risk assumption, risk avoidance, risk retention, risk transfer, or any other strategy (or combination of strategies) in proper management of future events.

Safety Group

Members of a specific industry joining together for the purpose of purchasing insurance.

Scopes Manual

A publication by the NCCI, the Scopes Manual is a guide to proper classification of employees. This manual details each employee classification code with a definition and a list of employees who would fall under that specific code.

Settlement

An agreement between you and the insurance company about your workers' compensation payments and future medical care. Settlements must be reviewed and approved by a workers' compensation judge to make sure they are adequate.

Self-Insurance

Protecting against losses by setting aside a company's own money, rather than purchasing an insurance policy. By being self insured, a company saves expenses that an insurance company charges for acquisition, premium tax, and general overhead. Often self insured companies use a third party administrator to administer its claims.

Short-Rate Penalty

A penalty paid by the insured for replacing coverage prior to the expiration date of the policy.

Short-Rate Policy

A policy written for a period of time less than one year.

Sliding Scale Dividend

A return of premium, after policy expiration, based on the actual loss experience of the carrier and the actual loss ratio of the insured.

Social Security Disability Benefits (SSDI)

SSDI benefits are payable to disabled individuals through the Social Security Administration.  Many state workers’ compensation statutes have specific provisions which dictate whether an injured employee may receive both workers’ compensation benefits and SSDI benefits at the same time.  Generally, if both benefits are appropriate for the same individual, a calculation will be performed to “offset” the benefits so that the individual does not receive more money than they are entitled to from both programs.

Solvency

The minimum standard of financial health for an insurance company, where assets exceed liabilities. State laws require insurance regulators to step in when the solvency of an insurance company is threatened and proceed with rehabilitation or liquidation.

Standard Exception

Certain employee groups rated separately instead of being included under the main class code. The Standard Exception, for workers' compensation, are 8810 Clerical Office, 8742 Outside Sales, and 7380 Drivers, unless the main class code description states that one of these employee group are included under the main class code.

Standard Premium

Premium after adjustment for experience modification, safety credits/debits, schedule credits/debits, and association credits, but prior to adjustment for size discount and expense constant. Standard Premium is used in retrospective rating to calculate the basic premium, maximum, and minimum.

Stock Insurance Company

An incorporated insurer with capital contributed by stockholders, to whom earnings are distributed as dividends on their shares.

Stop Loss Provision

A policy provision on a retrospectively rated policy that limits the loss amount for any individual claim that is included in calculating the retrospective premium. A Stop Loss Provision is an additional election, made by the policyholder, for which they are given a higher basic premium factor.

Subrogation

The legal process by which an insurance company, after paying a loss, seeks to recover the mount of the loss from another party who may be legally liable.

Suitable Gainful Employment

Employment that is reasonably attainable and offers an opportunity to restore the employee as soon as is practical and as near as possible to maximum self- support. Considerations are given to the employee’s qualifications, likely permanent disability, vocational interest and aptitudes, pre-injury earnings and future earning capacity, and the present and projected labor market.

Temporary Partial Disability (TPD)

TPD benefits are payable when an injured employee is able to work despite their injury. The benefits are available only for a limited period of time, in recognition of the fact that the employee will recover fully enough in the future that they will be able to resume employment without a wage loss.

Temporary Total Disability (TTD)

TTD benefits are payable when an injured employee is totally unable to work for a limited period of time. The benefits are no longer payable when the “temporary” disability clears and the employee is able to resume working.

Terrorism Coverage

Prior to September 11, 2001 this was included as part of the insurance policies at no additional cost. The tragedy of September 11 caused a substantial increase in this coverage due to the potential for reoccurring act(s) of terrorism. The President signed the Terrorism Risk Insurance Act legislation on November 26, 2002, whereby private insurers and the federal government share the risk of future losses from terrorism for a three-year period. With the President’s signature, all state exclusions for terrorism are rescinded.

Third Party Administrator (TPA)

An organization that processes insurance claims via contract for an insurance company or the company itself. 

Total Incurred Loss

An amount that represents the current expected payout on a claim over the life of the claim. Incurred loss is equal to net paid losses (paid losses less recoveries) plus reserves.

Transportation Expenses

A reimbursement to cover out-of-pocket expenses for mileage, parking and toll fees related to a workers' compensation claim.

Underwriter

Individual responsible for reviewing and analyzing insurance applications to provide an assessment of the risk associated with insuring the firm included on the application.

Underwriting

The process of selecting risks for insurance and classifying them according to their degrees of insurability. The process also includes rejection of those risks that do not qualify.

Underwriting Profit or Loss

An insurance company's profit or loss strictly from its' insurance operations, as opposed to investment operations.

Usual, Customary and Reasonable Fees

An amount customarily charged for or covered for similar services and supplies which are medically necessary, recommended by a doctor or required for treatment.

Utilization Review

The process used by insurance companies to decide whether to authorize and pay for treatment recommended by your treating physician or another doctor.

Vocational Rehabilitation (VR)

Vocational rehabilitation generally includes a melting pot of services that are offered to injured employees to help them return to work following a work injury. VR may involve transferable skills assessments, educational courses, job search assistance, and many other vocational aids. Vocational rehabilitation is sometimes also referred to as “occupational rehabilitation.”

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 statutory Workers’ Compensation provisions.

Voluntary Market

Workers’ Compensation insurance written outside of the Assigned Risk Plan.

Work Restrictions

A doctor's description of the work you can and cannot do.  Work restrictions help protect you from further injury.

Wrap-up Policy

An insurance program written to cover large construction projects, usually exceeding $100 million in construction value. Under this program, all labor performed under the contract is covered. The program usually includes insurance policies covering workers' compensation and general liability. Also called "Owners Controlled Insurance Program" .