Loss Cost Multiplier, in case you are wondering. If you’ve already read my post about LCM’s in the pricing factors of WC section of the blog there’s probably no need to read this, other than to realize you are way ahead of the curve. If you haven’t, you should check it out – we also cover voluntary and assigned risk markets, mod/merit ratings, and standardized credit programs.
For the rest of you…I guess it was my fault. I didn’t do my duty to travel, seek you out, and spread the words of our profits. (get it?)
In a competitive rate state there are two components to the policy rates (some states have a second system, called rate relativity) – the Loss Cost and the Loss Cost Multiplier.
As the name implies the LCM is multiplied with…yeah, the LC. The LC is specific to the state and the Class Code, the LCM is specific to the insurance carrier (and state). So as we know from 8th grade math, the LC is a ‘constant’ and the LCM is a ‘variable’. Therefore if you are looking at a prospect insured with a carrier that has a 1.9 LCM and your market has a 1.35 LCM – you have a very competitive advantage, from a rate perspective.
This doesn’t mean much. In most states there is also a lot of underwriting discretion – credit or debit authority of 15, 25, even 40%. So rate gaps can easily be closed, depending on the situation, and we haven’t even considered the deadly back-end dividend program (gotta swim in at least 6 figure water to see them come in to play). What’s important, is that you have a very good reason to solicit their business, and a reason for them to let you in. Do you talk to anyone that just calls out of no where wanting to sell you something you’d only buy from someone you know and trust? Knowledge isn’t power, it’s how you use knowledge that makes it powerful. We use our WC knowledge to get in the door. From there we go to town on their Package, Auto and Umbrella.
An important note, if you’ve read this far, you better read this. While this is a great conversation starter, you will waste a lot of your valuable time if you disregard your carriers’ appetites. If your market has a 1.3 LCM and wants to write retail stores, they don’t give a shit about a 6 figure roofing company, no matter how overpriced it is. Sure there are exceptions, but finding and fighting for exceptions is a horrible use of your time. Go be a lawyer if that’s your passion. Also, you’ll ruin your credibility. Insurance is a marathon, a 365 day circle. If you don’t write it this year it is next year’s opportunity. If you run someone up the flag pole 2 years in a row, don’t expect them to take your call on year 3 when you actually have a market for them (or the capacity to service their account…I got into Wawa and Liberty Properties my first year as a Producer. So when I showed up they asked, where is the rest of your team?). Ever send a ‘great’ account to your underwriter and they ask you if you have any type of advantage or inside track? It’s because 5 other agencies have sent it to them in the past 2 years.