* 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.