I’m always surprised by the number of employers out there who’ve never been schooled on the effect claims have on their workers compensation premiums! We receive questions, almost daily, from employers who’ve experienced large increases in their workers comp premiums only to discover a claim that occurred two years ago, previously forgotten, is now the culprit! Let’s explore how claims can effect not only premium, but your entire workers compensation program.
When a claim occurs, it’s because an employee has been injured. From small medical only to life threatening injuries the workers compensation mechanism is there to protect the injured worker. It makes sure they have medical treatment and rehabilitation, at no cost, for the injuries they sustain. It also replaces a percentage of their lost wages while off from work due to an on the job injury and compensates them for permanent disability along with death. Workers comp plays a vital role in everyday life for many folks!
A workers comp claim can have a far reaching effect on any employers workers comp program. Two broad areas of interest impacted by claims are:
- Premium and
Premium: When it comes to the age old question of cost, you’ll find that most claims will have a direct effect on premium an experience rated employer pays through the application of the Experience Modification Rate. The EMR is a factor, developed through use of an experience rating formula. An employers claims, loss history or loss experience are compared to all other employers classified the same. The EMR factor is then applied and, when claims are present, increase an employers premium. So claims will have a direct impact on what an employer pays for coverage!
Availability: Insurance carriers are in business to make a profit! That should not be a surprise, after all, they are no different than your business. They develop and price a product, sell it and provide service. They have employees they must pay and profit they must make. Look at it this way. Lets say your workers comp premium is $50,000 a year and in one year you have two claims that add up to $120,000. From the insurance company stand point your account is a big loser! But what if you’ve been a client of theirs for ten years without a claim? If you look at it that way your account has still been profitable for the insurance company. A big difference depending on your perspective! Typically an insurance company will non-renew an unprofitable account. Maybe not after a single bad loss year but certainly if they perceive a frequency problem. And an employer with an unprofitable workers comp account will find it very difficult to replace coverage in the standard market. You will lose your bargaining advantage, no longer able to qualify for the best priced program and possibly be at the mercy of the “markets of last resort” or pool programs, a very expensive proposition. So claims may effect your ability to secure coverage at a reasonable cost.
Here’s some tips:
- If you’re an employer, learn how workers comp claims increase your premium and may limit your ability to secure coverage. If you’re unsure ask your insurance company or agent for help! Learn the importance of an independent claim review and implement a claim review procedure at your company today. If you need more assistance, find a good independent workers compensation consultant, because they’ll represent your interests and work for you!
- If you’re an insurance agent, make sure you educate your client! Help them understand the claims process and its effects. Work with them to implement a loss control program and provide them future projections they need to make plans and not be surprised by any action taken by an insurance company.
- If you’re an insurance company, make sure you provide proper notifications, help your client understand the product! Make sure your claims department is handling claims properly, following proper claim reserve and claim management procedures. Make sure experience data is properly reported on a timely basis.
No employer should be surprised at how a claim impacts their workers compensation program, but many are and that’s not good!
Hope this helps you out!