Let’s talk a little about some of the primary factors responsible for driving the cost of most workers compensation insurance policies. No great secret here, just a reminder…
Take a look at this list:
- Classification Codes; Proper classification of a business, work process and/or employee job function is critical to the development of a correct premium. Mis-classification occurs with some frequency and when a business is misclassified into a higher rate class code, the employer pays a higher premium! So using the correct class code is a critical, primary factor in workers compensation premium development.
- Entity and Ownership Inclusion or Exclusion; Not quite as flashy as code problems but for a smaller employer it’s critical that ownership inclusion or exclusion be correct. Not only from a coverage stand point but if an owner is mistakenly included in coverage, when they did not wish to be, then additional premium will be paid. Many times this type of error is not discovered until audit, and usually that’s a time when an ownership correction may not be possible.
- Claims; Workers compensation claims, for experience rated policies, play a critical part in driving premium costs higher! Every claim paid will have an impact in some manner.
- EMod, Experience Modification Rate or EMR; In California it’s known as the X Mod; EMR fluctuations have a direct impact as a cost factor on workers comp premium. Developed from a formula that takes into consideration payroll or remuneration, classification code and claims, the EMR can take significant swings over a short period of time. Swings that can create a significant increase premium.
- And of course there’s more!
Each of these play a role in the premium an employer pays for their workers compensation insurance. Better control and a better understanding of the premium generating process can help an employer get a handle on the premium they pay.
Take claims for example. While you can’t eliminate all claims, even though that would be a great goal, simply having knowledge about a specific claim, it’s circumstances and knowing what’s going on with a claim, will have a positive impact. Reduce the amount of money paid out on a claim and you’ll have a positive impact on the EMod calculation which in turn will generate a lower or reduced Emod causing the premium to be lower. We are big advocates of workers compensation claim reviews. A claim review will discover whether or not a claim has been properly reserved, handled or settled. You’d be surprised how many are not!
Classification codes are critical. Misclassified employee payroll can develop into higher premium paid. Code reviews are likewise a good idea. Look to an independent workers compensation consultant to provide you with an accurate assesment of codes used on your workers comp policy, a workers compensation code review will do this. It’s really the place to start!
Experience modification rates are a critical factor in premium development. So critical that most employers should incorporate EMR reviews into their annual insurance review. If you need to have your EMR reviewed for accuracy, seek out the help of a consultant!
And finally…be sure to check the entity issue within your state. Are you, the business owner, included or excluded from coverage? If included, do you understand the rating payroll limitations for your state? If excluded, are you sure? Make sure you have filed the correct forms for inclusion or exclusion as prescribed by your state!
Hope this somehow helps you out!