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Taking the Mystery Out of Loss-Sensitive Workers’ Compensation Programs
Managing workers compensation costs is a key concern for senior living facilities. As with any line of insurance, there is a continuum of solutions available to finance this risk.
When you’re willing to take on more risk, you lower fixed costs and enjoy better cash flow – but it’s important to find the right balance between risk and reward. Many employers are discovering that loss-sensitive programs provide an ideal solution.
What Is a Loss-Sensitive Workers’ Compensation Program?
Think of a loss-sensitive worker’s compensation plan as the middle ground between a “Guaranteed Cost” workers’ compensation program and a single-parent captive or qualified self-insurance.
A loss-sensitive workers’ compensation program allows middle/upper-middle market employers to take thoughtful, strategic risk to achieve a greater level of control and cash flow benefit that is often thought to be only available to very large employers.
There is a continuum of options available as you take more risk. The table below represents each extreme of the continuum and the middle ground – a loss-sensitive program.
Guaranteed cost workers’ compensation program | Loss-sensitive program | Single-Insured or Single-Parent Captive |
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The insurance carrier assumes 100% of the risk. Organizations are assigned class codes and rates in accordance with state rules, and premiums are based on payroll, rates, and the experience modifier. GC programs can include dividends at various levels based on performance. These plans have the highest fixed cost due to retained carrier profits, high administrative costs, and the carrier retaining investment income on reserves. | The employer takes on some risk by accepting a large per-occurrence deductible (typically $150,000 to $250,000) and receives a much lower fixed-cost premium in exchange. There is also a collateral component. The employer is then at risk up to a certain maximum. The employer is incentivized to stay on top of their risk management and employee safety practices, as well as efficiently manage their program pre- and post-claim to realize the maximum financial benefit. | The employer takes on 100% of the risk, and all profits (and losses) are retained by the insured. Costs include claims administration, internal program management, and actual insured loss costs. The employer enjoys investment income advantages. Administrative and front-end capital requirements of the employer are very high. |
Managing Costs in a Loss-Sensitive Workers’ Compensation Program
Although multiple factors influence rates, the loss-sensitive fixed premium is typically around 35% of the guaranteed cost fixed premium. This represents a substantial savings, but the total cost incurred depends on the organization’s ability to control losses.
Guaranteed Costs Program – Net Cost Formula |
Large-Deductible Loss-Sensitive Program – Net Cost Formula |
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(Premium) x (experience mod factor) + other scheduled debits/credits/dividends = Net cost |
Fixed costs + non-subject surcharges + capped losses = Net cost |
The chart below illustrates the potential cost difference between a guaranteed cost and loss sensitive program. The minimum “fixed” cost is the minimum cost of the program with zero losses. The maximum cost is the worst-case scenario when losses are greater than expected. The maximum cost figure is negotiable and part of the underwriting process.

Are You A Good Candidate for A Loss-Sensitive Work Comp Program?
A loss-sensitive workers’ compensation program may be attractive to organizations that are trying to reduce their workers’ compensation costs immediately. However, not all organizations are good candidates. Below are some key considerations:
- Size. Loss-sensitive programs are typically available to midsize to large organizations. How large an organization needs to be to qualify depends on the state. In general, an organization with a standard premium of at least $500,000 is a good candidate, but in some cases, it can make sense for organizations with a work comp premium as low as $350,000.
- Loss control. These programs are most effective for organizations that are confident in their workplace safety culture and risk management. They can be especially attractive in the senior living sector, where certain claims tend to have high frequency, but severity is manageable. You generally see the same causes of loss – such as slips and falls, musculoskeletal injuries, repetitive trauma and cuts/lacerations – so there is a good sense of predictability. Organizations that already have good safety programs may find that their safety improves even more once they have “skin in the game” through a loss-sensitive program.
- Collateral. If you’re wondering what the catch is, it can be the collateral requirements and other hidden fees. Carriers typically require collateral from organizations that want to use a loss-sensitive program, typically in the form of a letter of credit or cash funding. Some carriers require a “stacking” of collateral every year, while other do not. Talk to us about details, as we’ve arranged advantageous collateral agreements for our clients.
How to Explore Your Loss-Sensitive Work Comp Options
Loss-sensitive programs can seem more complicated than guaranteed-cost programs, so it’s important to have an experienced broker by your side. Here at Propel, we’ve helped countless organizations realize significant cost savings by taking this approach. With deep experience, we can help you every step of the way. If you are even slightly interested, reach out to me to start a conversation.
J.D. Swanson
JD.Swanson@PropelInsurance.com
p: 865.415.6974 | m: 407.489.4021

J.D. Swanson
Working in the insurance industry for over 6 years, J.D. specializes in risk management solutions for the senior care, real estate, construction and non-profit industries. His team works tirelessly to build trust with their clients to deliver on their commitments and operate with integrity, professionalism and grit. More about J.D....