In Good Company
Kevin Smith, Executive Director

Members Continue to Enjoy Rate Reductions

For the second year in a row, the AMLJIA Board of Trustees has approved using retained earnings to offset any required rate increases to the AMLJIA membership.  The effect will result in savings to members and a relatively flat renewal on a rate basis in the coming fiscal year. 

There are a number of moving parts to get to rates that adequately fund the program.  Each year, AMLJIA uses an actuary to predict our losses for the coming year.  For FY2012, these losses are predicted to be up approximately 10 percent more than FY2011 based on our loss experience and our current self-insured retention (SIR).  The pool also must purchase excess or reinsurance for losses above our SIR.  For FY2012, the excess and reinsurance coverage is expected to be slightly higher for workers’ compensation due to the pool’s losses and relatively flat for all other lines of coverage.   

Finally, we need to collect enough to pay for administrative expenses to run the program and provide services.  Our administrative expenses are currently budgeted below last year’s levels.

Now that we have determined how much we need to collect for the coming year, we need to allocate the contributions among the members.  Individual exposures and loss experience play a role.  For example, if a member increases payroll, adds more vehicles and builds a new building, then it makes sense that the total amount of its contribution should rise.  This is the exposure. 

Loss experience, on the other hand, is equally important.  As I mentioned above regarding our excess workers’ compensation coverage, pool experience affects our rate.  But individual member experience is also taken into account.  In addition to predicting next year’s losses, the actuary calculates an experience modifier or “ex-mod” for each member.  This ex-mod is based on a member’s share of the total contribution to the program and its share of the total losses. 

For example, if your entity’s exposures are 3 percent of the program, then your losses should not exceed 3 percent of the total losses.  Members that have better than expected losses receive a reduction in contribution for the affected coverage.  For those members whose experience is worse than expected, it has the opposite affect.  This provides some accountability for members that are costing the pool money and positive feedback for members who successfully keep losses down. 

The AMLJIA has the financial strength to provide rate stabilization for our members, but we all need to continue to work together to keep rates stable over the long term.  You can do your part by taking advantage of the many services and training offered by the AMLJIA, such as the Loss Control Incentive Program and the Employment Law Hotline, to help prevent losses.  We’re here to help you – call us at 800-337-3682.