To lose or not to lose your experience modification factor…that is the question!
When an employer joins an association group self insured fund a few things happen to their workers compensation experience. If the employer was previously experience rated once accepted in the self insured fund will lose his experience mod factor. Rating factors developed by the self insured trust or fund will then be used to develop the premium an employer will pay. When joining the fund or trust, an employer will then be part of that group. He will no longer be individually experience rated.
A group trust or association self insured trust fund is a group of employers who have banded together and who joint and several assume the workers compensation risk for the entire group. Usually made up of employers from within the same industry or members of the same association. All workers comp risk is spread between all members of the group. Individual employers pay premium into the group trust and all expenses which include claims and administrative costs are paid by the trust.
Some advantages of a self insured group or association trust:
- They can offer small to medium size employers reduced workers compensation costs;
- Members have greater control over costs as governed by a board of trustees comprised of members of the group;
- Offers members active loss control services and programs to reduce losses;
Some disadvantages of a self insured group or association trust:
- If the trust incurs losses and expenses that it had not prepared for it may assess its members to make up for the monetary shortage. This means the trust may go back to its individual members and they will have to pay more into the trust than just their premium. Remember, the trust is made up of its individual members.
- Trust members are jointly and severally liable to all other members;
- There may be no coverage for exposures outside of the state the trust operates within.
For an employer, you must know your exit strategy. While a self insured association trust may be easy to get into it may be harder to leave. When an employer signs up they agree, in the participation agreement, to abide by certain rules and guidelines established by the trust. Existing claims, assessments, exposure to joint and several liability and their potential costs after leaving the trust must be understood.
So back to the employers workers compensation experience mod factor. If an employer with a favorable mod moves from a fully insured plan into a trust they will typically forfeit their experience mod factor. At the beginning this may be well offset by the reduced costs of being in the group trust. However when leaving the trust the employer will most likely have to re-qualify for his experience mod. In other words, he will have to wait a period of time for the data to be reported to the governing authority and to have his experience mod factor developed once again.
Don’t be surprised if coming out of a group self insured fund you find yourself starting over with an experience mod factor of 1.0! While this may not be bad for some employers, it may be for others. Of course I can only talk in general terms on this topic because each individual employer and fund are different. It’s the specifics that count!
I guess the point of this post is if you are an employer, go into self insured funds with your eyes open, read the fine print of the participation agreement and know what you’re in for when you decide to leave!
Hope this helps you out! Thanks!
