Why do we concern ourselves with prioritizing safety, claims management, mitigating risk and marketing insurance programs each renewal? Ultimately, the answer boils down to cost management and/or avoiding any negative financial impact on the company. What is the key to controlling cost? It relies on how effectively you manage your insurance pricing formula. Regardless of if you’re on a Guaranteed or Loss Sensitive insurance program, insurance cost is derived from the following equation:

Claims (C) X Exposure (E) x Marketing (M) = Price

To achieve better results, it may be necessary to make changes to your current approach. Start by evaluating each element in the pricing formula as to what is or is not working effectively toward your desired outcome. Below are areas to consider:


  • Review internal claims management practices that prevent unnecessary spending and/or reducing direct and indirect claims expense i.e., return-to-work, claim reserve review and timely reporting practices.
  • Review external claims management practices for adequate reserve practices by closing stale open claims, monitoring claims progress and/or carrier claims review meetings.
  • Evaluate the accuracy of Experience Modification and Loss Runs portraying your company’s overall experience and quality of risk appropriately. Are the claims reported on the loss runs and experience modification accurate? It’s not uncommon for experience modifications to be wrong due to errors inputting data used for calculation.


  • Look at internal safety and risk management practices with an eye towards preventing accidents and mitigating risk.
  • Identify which exposures in your operation have the greatest impact on cost. Then, evaluate if it’s possible to avoid, reduce and/or transferred to another party. Know what exposure you are accepting as a cost of doing business.
  • Consider contracts with outside vendors and customers. Is there appropriate insurance language that limits your liability?


  • Evaluate if your marketing is telling your story to the carriers with the intention of negotiating better rates and coverage.
  • Know the story your broker is sharing with the carrier(s). Does it include any process improvements, changes in controls, safety and claims management changes?

The key to reducing future risks lies in your insurance carrier’s ability to best predict of possible future events based on the past behavior or performance in similar situations. By evaluating these areas in the pricing formula, you can help mitigate potential risks. To learn more about the pricing formula concept, contact a member of our team.

Related insights