Multistate Transportation Company CPro Case Study

CPro Case Study: Multistate Transportation Company

Problem
truckA large transportation risk operating in multiple states had one bad year of claims
in the past five, yet was always profitable for the workers’ comp insurance carrier
because of continuously increasing premiums. The insured’s experience modification
(Xmod) also was increasing every year, which became a critical factor because of the
multimillion dollar size of the premium.

Highlights
• Insured with same carrier for past three years.
• Premium increased $400,000 each of past two years.
• Insured had implemented a successful loss control program in past year; for five years prior to that, annual claims averaged $1,388,000.
• Experience modification for the 2013 plan year was 1.32.
• Carrier’s quote for renewal premium on traditional deductible plan was $4,550,923
• Insured wanted premium relief in keeping with its success at reducing losses, and to begin reducing Xmod to stem future premium increases.
• Agent presented an alternative plan with high deductible
o $1,700,000 premium
o $1,250,000 deductible (which effectively raised the plan cost by the same amount)
o $1,750,000 letter of credit required
• Insured wanted to increase operating flexibility by eliminating the requirement for a letter of credit that could impair its ability to borrow for other business reasons.

Solution
The incumbent agent contacted CPro to see if we could help. The plan we recommended and ultimately presented with the agent was a multi-year, loss-sensitive workers’ compensation plan with a national carrier. The CPro plan satisfied key requirements of the insured by rewarding its recent success at curbing losses, as well as providing a means to reduce the Xmod each year instead of watching it increase, as with the guaranteed cost plan. This plan had no deductible, and it completely eliminated the requirement for a letter of credit, which gave a 7-figure boost to the insured’s credit and cash flexibility.

Results
The insured chose our proposal and implemented the plan, with these results:
• First year premium for the CPro plan was $3,709,157, compared to the $4,550,923 renewal guaranteed cost premium proposed by the incumbent carrier.
• Claims activity for the first year of the CPro plan (2013) beat projections, coming in at $1,025,000, the insured’s second lowest total in six years (and only 82% of budgeted amount.)
• Thanks to lower claims and a stable payroll, the first year CPro plan premium was reduced to $3,067,138 – a whopping $1,483,785 in savings for the insured in just the first year!
• Because experience modification is calculated on a rolling five-year average of claims expense, the client’s Xmod increased the first year, from 1.32 to 1.43. With continued loss reduction and a stable payroll the insured will see a significant drop in the Xmod rate in subsequent years.
• If the insured had stayed with the incumbent carrier’s deductible plan the premium would have jumped up another $500,602! Our loss-sensitive plan prevented that.
• Because the CPro loss-sensitive plan is for a period of 3 years it can generate additional premium savings with good loss control performance by the insured.

Summary
$4,550,923 2013 projected incumbent carrier renewal premium
$3,709,157 2013 projected CPro loss-sensitive plan premium @ 95% number
$3,067,138 2013 adjusted CPro loss-sensitive premium (based on reduced claims experience – this includes $402,000 deposit used for final payments)
$1,483,785 First year total savings, PLUS no letter of credit required!

Compare that with what would have resulted had the insured selected the high deductible plan:
$1,700,000 2013 premium
$1,025,000 Actual claims 82% of the $1,250,000 budgeted
+ $102,500 LAE Fee carrier would have added (for the insured’s success at reducing claims!)
$2,827,500 High Deductible plan first year cost

But to calculate the actual first year cost we must subtract the amount the multi-year, loss-sensitive plan sets aside for final payments in the out years:
$3,067,138 2013 CPro plan adjusted first year premium
–  $402,000 Less deposit used for final payments
$2,665,138 Real first year Premium of multi-year, loss-sensitive plan

Now, compare that number against the actual first year cost of the High Deductible plan:
$2,827,500   High Deductible plan first year cost
– $2,665,138 Real first year cost of multi-year, loss-sensitive plan
$ 162,362 Net first year savings, and NO letter of credit required!

Both deductible plans require a $1,750,000 letter of credit, which means the insured must set aside that amount on its books that cannot be used for other purposes. That pushes the total amount of funds spent or obligated to nearly the same amount as the Standard Deductible plan ($4,550,923):
$2,827,500   High Deductible plan first year cost
+$1,750,000 Funds obligated by required Letter of Credit
$4,577,500   Total funds required for high deductible plan
– $2,665,138 Adjusted first year CPro loss-sensitive plan premium
$1,912,362 Difference in total funds obligated – and NO letter of credit required!

Call CPro at 972-598-0401 to get the advantages of multi-year, loss-sensitive workers’ compensation insurance plans working for your clients.
• National footprint – serving all 50 states
• We ONLY work Workers Compensation
• 46+ years experience in commercial workers’ compensation insurance
• 15 top carriers
• Specialists in multi-year, loss-sensitive workers’ compensation coverage
• We will make joint presentations to help you work more effectively
• We conduct a full plan review with the insured’s agent each year, as requested

Comments are closed.