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Guaranteed Cost Plan

A Workers Compensation Term Defined, Described and Explained

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Guaranteed Cost Plan

With a guaranteed cost workers compensation policy the premium charged is based on a prospective basis, fixed or adjustable, or on a specified rating basis, but never on the basis of loss experience. In other words, the rate is guaranteed to the extent that it will not be adjusted based on the loss experience during the period of coverage. This is the opposite of a Retrospective Rating Plan.

Most main street type of business purchase some form of guaranteed cost workers compensation insurance policy. The rates used to calculate their premium are not changed or effected by the addition of direct payment of losses incurred. It's not that losses will not effect the ultimate premium through the applicaiton of experience rating, but that the rates used are static. Of course an experience rated policy will be adjusted by the application of the policyholders EMR.

Guaranteed cost policies are still audited. This means the actual exposure or rating payroll incurred during the policy period will be applied to the final premium calculation. And the policyholder may end up paying more premium for their policy if their rating payroll at the end of the policy is higher than that used to establish the policy at the beginning. But the rates used to calculate the premium will not change.

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