Are you wondering what consent to rate means? Have you been asked to sign a consent to rate letter? Why would your business agree to it?
Let’s talk about it.
What is consent to rate?
Consent to rate is a term used by insurance companies to charge more premium than typically allowed. Why? Well, many times in workers’ compensation, either the state sets the rates to be charged on workers’ compensation classifications or the insurance company has filed their individual rates that they intend to charge each classification. When these rates are set, insurance companies can only deviate from these rates typically up to 30-40% depending upon the state.
So, let’s say your company has experienced losses on the workers compensation policy that is leading to a higher experience mod factor. Perhaps your account has become too high risk for insurance companies. The risk that the insurance company is going to take on is high, like all businesses, insurance companies need to make money. In this example the insurance company may decide that in order to insure your business they need to use alternate rates that make sense to adequately cover the exposure. This is what is called consent to rate. You agree to a surcharge on the premium in order to obtain insurance coverage.
What can your company do?
There may be other options though. Many states have an outlet for workers’ compensation policies when coverage cannot be found in the standard markets. This outlet is called the assigned risk pool. The rates that are charged in the assigned risk pool vary from state to state.
In Iowa, typically the assigned risk pool rates are about 25% higher than the standard market rate. We typically don’t see many people elect the consent to rate option in Iowa, they’ll just go into the assigned risk pool which is usually less than agreeing to consent to rate an insurance company and paying extra. This is not the case in other states. Many states have extremely high assigned risk pool rates and the consent to rate option becomes attractive. Businesses can find a middle ground between the standard market and the high-risk market by agreeing to be in the middle with the consent to rate option.
If your business is being told that you need to agree to consent to rate, it doesn’t mean you do not have options. If you don’t agree, then you will not receive a quote or coverage. It’s best that if your company is in this position that you start shopping around and looking for your best alternative. At the end of the day, you need to talk to someone who has your best interest in mind and knows the insurance world inside and out.
Our entire focus is workers’ compensation and our goal is to make insurance simpler for companies. If your business is in a similar position, reach out to us at [email protected].