Workers Comp Glossary

Sources for this glossary include the California Division of Workers' Compensation, the Utah Workers Compensation Fund, and the American Physical Therapy Association. To add to this glossary, email Joan Collier.


A.M. Best Co.

Founded in 1899, A.M. Best Co. is a full-service credit rating organization dedicated to serving the insurance industry.

Accident Year

The year in which an injury occurred.

Accident Year Experience

The matching of accident year losses with accident year premium. Accident Year Experience changes as losses develop and premium finalizes.

Accident Year Losses

The losses that occurred during an accident year. Accident year losses for a given year change as claims develop.

Accident Year Premium

The combined premium that is attributed to the accident year. Accident year premium for a given year changes as premium adjusts in subsequent years. Accident year premium includes the pro rata portion of premium activity for the accident year.


A person who compiles and analyzes statistics and uses them to calculate insurance risks and premiums.


An individual who settles a claim filed by an insured. The adjuster evaluates the merits of a claim and determines the proceeds that might be payable for the claim.


The process of settling a claim. The settlement process includes evaluating the cause and amount of a loss, determining coverage and payment of any proceeds required under an insurance policy.

Admitted Assets

The assets that are permitted by a state to be used in determining the solvency, or financial condition of an insurance company.

Adjusting and Other Expenses (A&O)

The loss adjustment expenses that are not related to the defense, litigation, or cost containment of a claim. Includes the cost of adjusters. Also includes the cost of inspectors, appraisers, fraud inspectors, while working in the capacity of an adjuster.


An individual authorized to represent an insurance company to sell insurance. A direct agent sells exclusively for one insurance company. An independent agent represents two or more insurance companies.

Aggregate Limit

The maximum amount an insurer will pay for all claims covered by a policy during a policy period.

Allocated Loss Adjustment Expenses (ALAE)

See Defense and Cost Containment Expenses

American Medical Association (AMA)

A national physician's group. The AMA publishes a set of guidelines called "Guides to the Evaluation of Permanent Impairment."

Americans With Disabilities Act (ADA)

A federal law that prohibits discrimination against people with disabilities. 800-669-4000 or 1-800-669-6820 (TTY).

Anniversary Rating Date (ARD)

The date that is used to determining the effective rates on a policy. The date is usually the effective date of the policy, unless the rating board establishes a different date.

Annual Statement

The annual report that an insurance company is required to file with the state insurance department, in each state in which they do business. The report is compiled using statutory accounting principles (SAP) by using forms designed by the NAIC. The report provides information needed to assure that an insurance company has adequate reserves, and that the assets are available to meet all benefit payments for which they are liable.


Arising out of and occurring in the course of employment.

Applicants' attorney

A lawyer representing an injured worker in a workers' compensation case.


A way of figuring out how much of a permanent disability is due to a work injury and how much is due to other disabilities.

Assigned Risk Adjustment Program

An additional fee placed on Assigned Risk policies (In NCCI jurisdictions) with experience modification factors higher than 1.00.

Assigned Risk Plan – Assigned Risk Pool – State Fund

A state designated program that ensures all employers can have access to workers' compensation insurance even if insurance companies are not willing to voluntarily write the insurance. Often the last resort option for companies with poor experience ratings. Assigned risk plans usually have higher rates than the voluntary market.

Association Credit

A premium discount provided to members of a trade association that has selected WCF as its workers' compensation insurance carrier of choice. Members must meet the program's requirements to obtain the discount.


The acceptance by a reinsurer (assuming company), of part or all of the written insurance transferred to it by the primary insurer or another reinsurer. Assumed premium is the premium received from risk transfer to a reinsurer. Assumed losses are the corresponding losses related to the Assumed premium.

Assuming Company

The reinsurance company that accepts risk from a primary insurer or another reinsurer.

Audited Premium

The final premium for the term of the policy, calculated by auditing actual payroll values for the type of work being performed.

Average Daily Wage (ADW)

A calculation of an injured worker's average daily earnings. This term is sometimes used to determine entitlement to wage loss benefits following an injury.

Average Weekly Wage (AWW)

A similar calculation to the ADW in determining the entitlement to wage loss benefits by week for a fixed period of time.

Basic Premium

A percentage of the standard premium used in calculating the premium of a retrospectively rated policy. Basic Premium is the portion of the retrospective premium that is loaded to reflect a policy's expected overhead cost and profit.


Monetary payments and other services provided by insurers under the terms of an insurance policy.

Bulk Reserves

An additional amount added to reserves to account for claim development that has not been included in the case reserves. Bulk reserves can not be attributed to any individual claims, but are an adjustment related to all outstanding claims.

Calendar Year Experience

The matching of calendar year losses with calendar year premium. Calendar year experience does not change as losses develop and premium finalizes.

Calendar Year Losses

The combined losses that occurred during a calendar year. Calendar year losses do not change as claims develop in subsequent years. Calendar year losses include claim activity for the current year claims and additional claim activity for prior year claims that occurred during a given calendar year.

Calendar Year Premium

The combined premium that transpired during a calendar year. Calendar year premium, for a given year, does not change as premium adjusts in subsequent years. Calendar year premium includes premium activity for the current calendar year only, regardless of the policy period.


The termination of an insurance policy before its expiration date by either the insurance company or the policyholder.

Carrier of Last Resort

The insurance company designated to accept a policyholder after the policyholder has been refused coverage by all other insurance companies. The Carrier of Last Resort is usually a state fund. Not applicable in monopolistic states and in states that have assigned risk pools.


Carve-out programs allow employers and unions to create their own alternatives for workers' compensation benefit delivery and dispute resolution under a collective bargaining agreement.

Carve-Out (PEO Workers’ Compensation Policy)

A hybrid PEO arrangement where the employers maintains their own workers’ compensation policy and does not obtain coverage through the PEO workers’ compensation master policy.


To pass on to another insurance company (reinsurer) all or part of the insurance written by an insurer (ceding company), to reduce the possible liability of the reinsurer. Ceded premium is the premium paid for the transfer of risk to a reinsurer. Ceded losses is the corresponding losses related to the ceded premium.

Ceding Company

The insurance company that transfers risk to a reinsurer.

Certificate of Insurance

A document issued by an insurance company that provides evidence of the existence and terms of a policyholder's insurance coverage.


A request to an insurance company for payment of a loss covered by an insurance policy.


An individual who submits a claim to an insurance company for an incurred loss.

Claims Outstanding (or Claims Pending)

The total number of open claims at any given time.

Claims Reserve

The reserves attributed to an individual outstanding claim. Claims reserves contrasts with bulk reserves that cannot be attributed to an individual claim, but are attributed to all outstanding claims. Claims Reserves are equal to total incurred less net payments (gross payments less subrogation).

Claims Severity

The average cost per claim. Severity can be based on accident year or policy year, for an individual policy, a group of policies or all policies.

Class Codes

Also called work comp code or class code. Each type of work has risk of injury. Workers’ compensation codes are established that identify the type of work being performed and provide an associate code. Workers’ compensation premium rates are established by codes and are meant to be commensurate with the risk associated with that workplace exposure. Codes descriptions are maintained by NCCI in the SCOPES manual.

Collected Premium

The amount of premium that has actually been received as payment.

Combined Ratio

The sum of the loss ratio and expense ratio. The combined ratio indicates whether an insurance company is making a profit on the business it is writing, without taking into account the investment returns on the premium received.


An order by a workers' compensation judge for a lump sum payment of part or all of an injured worker’s permanent disability award.

Cumulative Injury

An injury caused by repeated events or repeated exposures at work.

Death Benefits

Benefits paid to surviving dependents when a work injury or illness results in death.

Declarations Page (Dec Sheet)

The portion of a policy describing a risk. It includes the insured's name and address, policy term, policy premium, and amount of coverage.


The amount of loss that the policyholder pays in a claim. The policyholder is liable to pay the deductible before the insurance company is obligated to pay the claim. The policyholder receives a discount by adding the deductible to the policy. The higher the deductible, the lower the premium.

Defense and Cost Containment Expenses (D&CC)

The loss adjustment expenses that are related to the defense, litigation, or cost containment of a claim. Includes surveillance, appraisers, private investigators, and fraud investigators, if working in defense of a claim. Also includes rehabilitation nurses and the cost of engaging experts. Prior to 1/1/98, Defense and Cost Containment Expenses were referred to as Allocated Loss Adjustment Expenses (ALAE).

Deposit Premium

The premium paid at the beginning of the policy that provides for future premium adjustments based on an estimate of the final premium.

Disability Management

A process to prevent disability from occurring or to intervene early, following the start of a disability, to encourage and support continued employment.


A payment to the policyholder by an insurance company out of its surplus or net worth.

Date of Injury (DOI)

The date of the accident that caused the injury.

Earned Premium

The pro rata portion of written premium applicable to the expired portion of the policy term for which the insurance was in effect.

Effective Date

The date coverage begins on an insurance policy.

Employer's First Report of Injury

A report that an employer is required to file with its workers' compensation carrier when one of its employees is injured while working.

Employers Liability

Employers liability insurance applies to bodily injury by accident or bodily injury by disease. Bodily injury includes resulting death. The bodily injury must arise out of and in the course of the injured employee's employment.


A written amendment attached to a policy modifying the terms of the insurance contract. The modification can only become effective with the agreement of the insured, unless it is clearly made solely for the benefit of the insured.

Estimated Premium

The premium on a term policy calculated using estimated payroll exposure. Estimated premium is the policy premium prior to the final premium calculation.

Expense Constant

A flat charge added to small account premiums to cover the cost of issuing and servicing a policy.

Expense Ratio

The percentage of premium used to pay for the acquisition, writing, and servicing of a policy. The expense ratio is equal to underwriting expenses divided by written premium. The expense ratio shows how much it costs the insurance company to write the premiums.

Experience Modification Factor

A premium modifier that reflects the loss experience of a policyholder compared with payroll exposure during the same time period. The modifier increases or decreases the current premium depending on how the actual exposure and losses, for the past three years, compares with expected losses for the same amount of exposure. Experience mods are calculated by the NCCI.

Experience Period

The window of time for loss and payroll data used to calculate an experience modification factor for an employer. Traditionally a three-year period, starting four years prior to the effective date of the experience modifier. Rating bureaus may not wait until three years before establishing an experience rating for an employer. If an employer reaches a certain, relatively low threshold of workers' compensation insurance premiums in any one of the three years in the experience period the employer is eligible for experience rating. Each state has different thresholds for premium amounts before a company is eligible for experience rating.

Expiration Date

The date coverage ends on an insurance policy.


Being subject to the possibility of a loss.


A provision in workers' compensation insurance law that extends protection to an employee that is injured in a state other than his state of hire.

Facultative Reinsurance

The reinsurance of part or all of a single policy. In facultative reinsurance, both the primary insurer and the reinsurer have the faculty or option to accept or reject the policy to be reinsured.

Fair Employment and Housing Act (FEHA)

A state law that prohibits discrimination against people with disabilities.

Family and Medical Leave Act (FMLA)

A federal law that provides certain employees with serious health problems or who need to care for a child or other family member with up to 12 weeks of unpaid, job-protected leave per year. It also requires that group health benefits be maintained during the leave.

Final Order

Any order, decision or award made by a workers' compensation judge that has not been appealed in a timely way.

Final Premium

The premium on a term policy calculated using actual payroll exposure. Final premium is calculated after the policy has expired.


The number of claims occurring. Frequency can be based on accident year or policy year, for an individual policy, a group of policies, or all policies.

Governing Classification

A policyholder's workers' compensation class code that has the most payroll exposure. The governing classification generally describes the main business operation of an employer. The governing classification cannot be a standard exception unless there are no other class codes other than the standard exceptions.

Guaranteed Cost

A workers’ compensation insurance policy that cannot be adjusted due to losses that occur during the policy term. Only payroll values affect the premium charge.


Legal proceedings in which a workers' compensation judge discusses the issues in a case or receives information in order to make a decision about a dispute or a proposed settlement.

Impairment Rating

A rating established by a claimant's physician that quantifies a claimant's physical disability. The Impairment Rating is determined by medical examinations, using American Medical Association (ADA) guidelines. Individual states may have additional guidelines that supercede the ADA guidelines. The impairment rating reflects the percentage of a claimant's whole body impairment.

Incurred But Not Reported (IBNR)

Covered losses that occurred but have not yet been reported to the primary insurance company. A reserve is set up to account for this unknown liability, to more accurately reflect the expected ultimate losses.

Incurred But Unpaid Benefits (IBUB)

The general liability accounts that reflect the reserves that have been booked to pay any future liabilities on outstanding claims and IBNR claims.

Incurred Losses

Paid losses plus additional loss reserves for anticipated future claims. Many loss sensitive insurance policies adjust premium based on incurred losses rather than solely on paid losses.


When a policy is active and coverage is extended; reflects the exposure for which an insurance company is providing insurance coverage.


Compensation for a loss.

Indemnity Claim

A claim which includes payments and reserves for lost wages and medical expenses. Indemnity claims occur when an injured worker is out of work long enough to receive compensation for lost wages.

Independent Contractor

An individual who does a job for another individual, or company, according to a contract and is not an employee of the individual, or company.

Independent Medical Examination (IME)

An examination of an injured worker by a physician selected by the insurance company. Independent Medical Examinations are usually done to determine the appropriateness of a course of treatment, or to provide an evaluation of permanent impairment.

Installment Premium

A partial payment of premium made by a policyholder for coverage on a term policy. The installment premium is determined by dividing the estimated premium into smaller amounts at set intervals during the policy period.


The transfer of risk from one party (insured) to another party (insurer), in which the insurer promises to pay the insured (or others on behalf of the insured) an amount of money, or service, for losses sustained from an unexpected event, during a period of time for which the insured makes a premium payment to the insurer.

Insurance Commissioner

The official of a state charged with the duty of enforcing its insurance laws. Also called the superintendent of insurance and director of insurance.


The person or party protected by an insurance policy.


The insurance company or other organization providing insurance coverage and services to an insured.

Interstate Rating

An experience modification factor that applies across several states. Interstate ratings are calculated by a rating bureau (like NCCI) for employers operating in more than one stated. Most, but not all states (Michigan, Pennsylvania, and Delaware are exceptions), participate in the interstate rating system. Employers can have one experience modifier applying to their operations in most states but a separate modifier calculated by the stand-alone state rating bureau. The separate state modifier(s) apply only to workers’ compensation insurance premiums for the employer's operations in that stand-alone state.

Investment Income

Money earned from invested assets. An insurance company's invested assets usually include reserves and policyholder surplus. Net investment income is investment income less investment expenses. (Does not include realized, or unrealized, gains or losses).

Long-Tail Line

A line of insurance coverage where the occurrence and reporting of a loss and the payout of the claim is often spread out over a long period of time. The uncertainty of the length of the time period makes it difficult to determine the value of the claim when the claim is first reported.

Loss Adjustment Expenses (LAE)

All of the costs associated with the settlement of a claim. (See Defense and Cost Containment Expenses and Adjusting and Other Expenses.)

Loss Conversion Factor (LCF)

A multiplier used in calculating the premium of a retrospectively rated policy to include the cost of settling claims. Incurred losses are multiplied by the loss conversion factor to obtain an amount equal to incurred losses plus loss adjustment expenses.

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