How do I report ownership changes on a workers compensation policy?

A recent question asked by a client and one I’ve been blogging about lately! It is a requirement found in a workers compensation policy and the responsibility of the business owner to notify the advisory rating organization and insurance company of any changes in ownership. So lets talk about how ownership changes are reported and why it’s required in an employers workers compensation policy.

The topic of ownership changes, when related to a workers compensation policy, can be broad and cover a wide range of items but mostly has to deal with the transfer, sale or conveyance by other means of the assets or ownership of one business to another. This topic also includes name changes and changes of legal entity status. A change in ownership, from a workers comp perspective, can include:

  • Name Changes: Such as Bill’s Taco Palace to Bill’s Taco Restaurant;
  • A Change of the Legal Entity: Joe’s Roofing LLC to Joe’s Roofing Inc.;
  • Sale or Transfer of an Entity’s Ownership Interest: Steve’s Construction Inc sells part or all of their assets to Paul’s Construction Inc.;
  • Sale or Transfer of an Entity’s Physical Assets to Another: ABC, Inc. sells their business assets to Kathy’s Plumbing, Inc. but they retain their legal entity name of ABC, Inc.; 
  • A Merger: XYZ, Inc. merges with JKS, Inc. to form a single business;
  • Formation of a New Entity from a Previous Entity that has been dissolved, is non-operative or remains but operates at a reduced capacity: CASH, LLC is formed to replace the dissolved entity known as CREDIT, INC.
  • And there is special treatment for Irrevocable Trusts and Receivers.

Ownership is important to workers compensation because of the need to keep track and properly apply an employers workers compensation experience. Experience, in this context, refers to an employers workers compensation claims, payroll and business operations. Experience rating is a state mandated program. It compares an individual employers actual claim experience with average claims from other similar businesses and assigns a modification factor to the employers premium based on the outcome of the comparison. The experience modification rate or EMR may be shown as a credit mod, one less than 1.0 or a debit mod, one greater than 1.0. This factor is then applied to the employers premium. It’s an employers claim experience that directly effects the premium they pay so you can see why tracking ownership and making sure their experience is properly applied is important.

Ownership changes are generally reported to an insurance company and rating organization by the completion of an ERM 14. This form provides the rating organization with detailed information so they can properly apply the experience from one entity to the changed entity. For the most part written narratives are also acceptable.  Also,

Remember this:

  • The workers compensation policy requires any change in ownership be reported to the insurance company and rating organization within 90 days;
  • A change in ownership can be reported by completing an ERM 14 or submitting a written narrative. 

Hope this helps you out!