Category Archives: Workers Compensation Insurance

Workers Compensation Insurance, Workers Compensation Premium Audits

Can Combining Entities Lower Your Workers Compensation Experience Modification Factor?

Just to review your workers compensation insurance experience modification factor is an enormously important business statistic for your company. Not only does this “factor” substantially increase or decrease your companies workers compensation premium , but’s it’s a benchmark that you can use to evaluate your costs and performance against your peers, AND more importantly is a bench mark that others use to evaluate your company, like lenders, potential customers, and suppliers. I won’t get into the weeds on how it’s calculated I’ll save that for another rant. Point here is know what this statistic is and how it drives costs, and creates opportunities for your business.

Now onto why I actually sat at the keyboard this bright lovely morning. If you have several companies under the same management and control it may help or hurt if you combine the entities for purposes of you experience modification calculation. At one point in time creating a new corporation and transferring ownership to it was an effective strategy to reduce a high workers comp. experience mod to 1.00. This strategy is no longer possible due to new NCCI rules.
NCCI, National Council on Compensation Insurance a non profit that collects and analyzes workers compensation insurance data has a 3-pronged approach for when ownership changes. To put it simply the experience of any company undergoing a change in ownership is transferred to or retained by the experience rating of the acquiring, surviving, or new owner. The experience of an entity undergoing a change in ownership is excluded only if all 3 of the following conditions are met:

* A material change in ownership (if there is any continuation in ownership, the interest must have been less than 1/3 ownership before the change or less than 1/2 ownership after).

 

* A change in operations enough to result in a reclassification of the governing class code.

 

* A modification in the process and hazard of the operations.

If all three conditions are met then the experience is excluded. However this is highly unlikely since it would be like selling an auto shop to a new owner who plans on turning it into a coffee shop.

If the new owner does not have an existing mod, the mod of the entity becomes 1.00 if the experience is excluded for the reasons above; otherwise, a mod is calculated from the applicable combined experience of the old and new owner.

Do you have a problem with your experience mod and reside in the following states, PA,FLA,CA, NJ, CT, or NY business insurance, workers comp insurance, contact an expert today at Metropolitan Risk Advisory and we will endeavor to fix your experience mod to get your cost structure back to where it should be.

For those of you who can’t get enough on this topic the Virtual University “Ask an Expert” service recently received the following question regarding NCCI rules:

“What is the rule with regard to workers compensation when an employee buys the company that he has been working for? The company changed from a corporation to an LLC. Will the company’s mod change?”

NCCI has a three-pronged ownership/classification/process rule regarding ownership changes. In the example cited, the employee would buy the mod unless there has been a change in operations, processes or hazards of the business.

The experience as defined and used to calculate a mod includes applicable payroll separated by class/job function and actual incurred losses for all of the insured’s (owner’s) current and past operations within each state, including any operations that have been discontinued or self-insured until they drop off of the experience period. If an interstate mod is being calculated, the experience includes operations in all states, with some exceptions (e.g., monopolistic states) outlined in the manual.

The “experience” is included from all businesses of the insured under common majority ownership (the manual gives examples). These interests, and any changes of interests, are shown by submitting NCCI form ERM-14 “Confidential Request for Information” to the insurer. Supposedly this ownership rule exists for two reasons in particular.

First, the premise is that experience, loss control, etc. is a function of ownership and process. Second, the rule attempts to avoid what many insureds attempted in the past to circumvent the experience rating plan. For example, if the experience mod got too high because of poor experience in one state, some insureds would create a “dummy” corporation to transfer ownership to the new corporation, lower the mod on the remaining operation and give the new corporation a 1.00 mod. So, in addition to the common ownership rule, NCCI modified its change in ownership provision which was noted above in the 3rd paragraph.

If the purchaser of the entity does not have an existing mod, the mod of the entity becomes 1.00 if the experience of the acquired entity is excluded for the reasons above; otherwise, a mod is calculated from the applicable combined experience of the entity and the purchaser (if any). If the seller of the entity continues to be experience rated, its mod is revised to exclude all experience of the relinquished entity if NCCI is furnished with the experience necessary to transfer the data to the purchaser.


We recommend you speak with a knowledgable broker or risk advisor to do a brief feasibility study to see what the impact is on your experience modification factor should you seek to combine entities. We also advise you research the experience modification factor of any business that you will purchase or merge with as a high workers compensation insurance experience mod may be a good negotiating point for the acquiring business to gain concessions.
Other, Workers Compensation Insurance

What Are Workers Compensation Insurance Loss Cost & How Do They Impact Your Insurance Premium

I get this question a lot, “What are workers’ compensation insurance loss costs and how do they affect my business?”

The first response from my slack jaw is really, you want to know about this stuff? Of course, the smart C.F.O.’s, Executive Directors, and owners of small businesses realize that it’s little details like this that they can gain a competitive advantage against their competition. It’s not that they are “interested” in loss costs, it’s that insurance, and specifically, workers compensation insurance specifically eat of a significant piece of their expense budget. If they can rein in this line item on their expense sheet (P&L) they can have an outsized impact their overall cost structure, giving them flexibility in their pricing, and higher profits. Assuming you hadn’t crawled out from under a rock, you know that the cost each business pays for both NY workers’ compensation insurance and NY general liability insurance differs for each and every company and is uniquely based upon your results.
 

What loss costs are essential without all the insurance speak is the baseline premium variable that ultimately is used to calculate your companies insurance premium. Think of it this way: Think of the insurance company like a bank, and loss costs as the prime rate, got it! Everything is calculated off that baseline number, (Prime Rate). The insurance carriers have over 600 prime rates that are broken down by job classification and again based upon geographic location. The 600 “Prime Rates” or “Loss Costs” are based on “Workers Compensation Classifications” which typically is a four-digit code that tells the insurance carrier the folks that work for you are carpenters and not lawyers. The risk of a work-related injury to a carpenter is much higher than it is for an attorney, usually. Thus this is how an insurance carrier arrives at its base rate or “prime rate”; through loss costs associated with the job classification, by geographic region (county).

 
Here is the quick skinny on some of the other variables that are used in the gross calculation of your workers’ compensation insurance premium.
 
 
 Variable  What Purpose Does It Serve  Industry or Company Specific
 Loss Costs  Base insurance rate for each job description, by State, by County  Industry
 Experience Modification Factor  A complex calculation that determines your specific insurance companies’ loss experience as it relates to workers’ compensation insurance. Anything over a 1, you get surcharged, anything below a 1 you get a credit. ( Note: an experience modification factor of 1.0 is like getting a C on your report card. Your Company 
 Territorial Charge  In some states like NY there is an additional surcharge for certain classes like construction in Ne York City.  Industry/ Your Company Both

WHERE THEY GET THE LOSS COSTS :

For those that want more bless you! The history of Workers’ compensation rate regulation is essentially one of controlled pricing. All insurers submitted their premium and loss data to a designated rating organization such as NCCI. The organization used pooled data submitted by all insurers to develop rates for each of about 600 different work classifications. These rates were then submitted to the state insurance department for approval. Obviously, in some cases the recommended rates were approved while in other cases rates significantly lower than the recommended rates were approved. The key is all insurers in the state had to use the approved rates by the insurance department for all workers’ compensation insurance loss cost policies written in that state.

However, things are starting to change in the exciting world of workers’ compensation insurance loss cost. There have been some concerns over the past few years that the administered pricing system deprives businesses of the benefits of a truly competitive market. As a result, most states have altered their rate regulations to allow insurers to charge rates that differ from those developed by the recognized rating authority in the state. This approach to rate regulation is typically referred to as an open or competitive rating. 39 states (and D.C) have adopted a competitive rating, generally using one of the following three methods.

  1. Insurer’s file deviations from advisory published rates
  2. Insurer’s file loss cost multipliers for use with advisory published loss costs
  3. Insurers file their own proposed rates

The difference between loss costs and rates is that loss costs contemplate only expected losses and loss adjustment expenses. 

In states that have allowed insurers to file deviations from published rates, the rating bureau develops and files final rates with the regulators. Each insurer then advises the regulatory authorities of the percentage by which it will deviate from these rates.

In states that have implemented competitive rating by adopting loss costs, the rating bureau develops and files with regulators loss costs that reflect only expected losses and loss adjustment expenses, not final rates. Each insurer then files with the regulatory authorities a loss cost multiplier that reflects that insurer’s estimate of expenses and desired underwriting profit. To arrive at final rates in a loss cost system, the insurer’s loss cost multiplier is multiplied by the loss costs filed by the rating bureau.

In states that require insurers to file their own proposed rates, each insurer files its own proposed final rates with regulators. In developing their proposed final rates, insurers in these states typically use pooled loss cost data made available to member insurers by the rating organization.

The table below shows the process used in each of the states that have adopted competitive rating, and which rating bureau develops rates on behalf of all insurers in administered pricing states.

If you have any questions about New Jersey, Connecticut, or NY workers’ compensation loss cost insurance, or if you would like to request a free quote, contact Metropolitan Risk Advisory today.

Workers Compensation Rate Regulation Premium Calculation Basis
Competitive Rating States Lost Costs/Rates
Alabama Loss Costs
Alaska Loss Costs
Arkansas Loss Costs
California Loss Costs
Colorado Loss Costs
Connecticut Loss Costs
Delaware Loss Costs
DC Loss Costs
Georgia Loss Costs
Hawaii Loss Costs
Illinois Advisory Rates and Loss Costs(Footnote 1)
Indiana Advisory Rates and Loss Costs(Footnote 2)
Kansas Loss Costs
Kentucky Loss Costs
Lousiana Loss Costs
Maine Loss Costs
Maryland Loss Costs
Michigan Loss Costs
Minnesota Loss Costs
Mississippi Loss Costs
Missouri Loss Costs
Montana Loss Costs
Nebraska Loss Costs
Nevada Loss Costs
New Hampshire Loss Costs
New Mexico Loss Costs
New York Loss Costs
North Carolina Loss Costs
Oklahoma Loss Costs
Oregon Loss Costs
Pennsylvania Loss Costs
Rhode Island Loss Costs
South Carolina Loss Costs
South Dakota Loss Costs
Tennessee Loss Costs
Texas Loss Costs
Utah Loss Costs
Vermont Loss Costs
Virginia Loss Costs
West Virginia Loss Costs
Administered Pricing Scales Rating Bureau
Arizona NCCI
Florida NCCI
Idaho NCCI
Iowa NCCI
Massachusetts The Workers Comp. Rating & Inspection Bureau of Massachusetts
New Jersey Comp. Rating & Inspection Bureau of NJ
Wisconsin Wisconsin Compensation Rating Bureau

**North Dakota, Ohio, Washington, and Wyoming are monopolistic fund states

Footnotes
1. Illinois issues both advisory rates and loss costs. Insurers can use either in developing final rates.
2. Indiana issues both advisory rates and loss costs. Insurers in the voluntary market can use either in developing final rates. Advisory rates must be utilized for assigned risk policies.
3. Legislation effective February 1, 2008.

Workers Compensation Insurance

“Many Business Owners Unaware of the Personal Liability Exposure Relating to Workers Compensation Insurance”

“Many Business Owners Unaware of the Personal Liability Exposure Relating to Workers Compensation Insurance”

If you have employees who work on or near “navigable waters” as defined by the Long Shoreman’s Act, failure to secure the proper Longshoreman’s Coverage  under your NY or NJ Workers Compensation Insurance policy can leave the business owners personal liable , piercing the corporate veil should there workers become injured on or near navigable waters. A example would be a plumber who boards a vessel or a dock, and repairs a bathroom fixture. Should they become injured, even though it’s a one off scenario, that plumbing or electrical operation can be denied Workman’s Compensation Insurance due to the location of the injury. The resulting damages can and will pierce the corporate veil, making the business owners personal liable. 

The Longshore and Harbor Workers Compensation Act (the Longshore Act or LHWCA) provides a no-fault compensation remedy, in lieu of the common law remedy of damages, to employees other than members of the crew of a vessel who are injured or suffer an occupational disease while engaged in maritime employment on navigable waters. The Act applies to any person engaged in maritime employment, including any longshoreman or other person engaged in long shoring operations. It also applies to any harbor worker, including a ship repairman, shipbuilder, or shipbreaker, whose employer is engaged in maritime activity, in whole or in part, upon the navigable waters of the United States (including any adjoining pier, wharf, dry dock, terminal, building way, marine railway, or adjoining area customarily used by such employer in loading, unloading, repairing, dismantling, or building a vessel).

It is critical that company executives assure that any potential exposure under the Act is insured (or self-insured) since the penalties that may be assessed against them are onerous. When an employer fails to secure coverage and a claim arises, the employer will be subject to a fine up to $10,000 or imprisonment of up to 1 year, or both. Furthermore, when the employer is a corporation, the officers of the corporation are each subject to this fine and/or imprisonment in addition to any fine levied against the corporation itself. These officers are also personally liable, jointly and severally, with the corporation for any compensation or benefit that any accrue under the Act to an employee for a covered injury. The fact that no exposure under the Act was anticipated is not an excuse for the failure to secure compensation under the Act.

If you have employees that occasionally work on , or near “navigable waters” such as ships, pier, wharfs , dry dock,terminal, building way, marine railway, or adjoining area customarily used by such employer in loading, unloading, repairing, dismantling, or building a vessel please check with your insurance broker or RISK ADVISOR on the applicability of this law , a potential employee and your liability. We suggest purchasing or adding an endorsement to the policy that will contemplate such an event.