Loss Cost

A loss cost — also called the pure premium — is the pure expected claims cost for a class of risk, stated per unit of exposure (per $100 of payroll for workers' comp, per $1,000 of sales for some liability classes). It is the raw actuarial cost of claims only; it does not include the carrier's overhead, commissions, or profit.

For workers' comp, the NCCI (or an independent state bureau) files an advisory loss cost for every class code. Each carrier then applies its own loss-cost multiplier (LCM) to convert the loss cost into a chargeable rate: manual rate = loss cost × LCM. So two carriers writing the same class in the same state start from the identical loss cost but charge different rates because their LCMs differ.

Loss costs are public, regulator-held data — which is why we can publish real filed WC loss costs by state (see our WC loss-cost study and the state rate hubs). Note the difference from a loss ratio: a loss cost is a forward-looking filed input per class; a loss ratio is a backward-looking result on total premium.