Dealing With an Increase in Your Experience Modifier

In a previous post we discussed how changes in the way experience modifiers are calculated could affect your premium especially if you are an employer with several large losses in the past four years. If you fall into this category here are some techniques you can implement in order to minimize the impact of the changes.

The first thing you can do, if you haven’t already, is implement a safety program.  There are several resources available to assist you:

The Occupational Safety and Health Administration

OSHA Approved Consultation Service

Your Insurance Carrier

Your Agent

As discussed previously, the experience modifier calculation still penalizes frequency versus severity. Therefore any steps you can take to demonstrate that you are being proactive about reducing workplace injuries will be beneficial

Beyond looking at workplace safety, take a moment to study your company’s experience modifier and make sure it is computed correctly.  Since you know your loss history you have the ability to compute what your expected modifier should be.  Have your agent assist you with this process.  If the computed modifier is going to result in an increase in premium you can be prepared ahead of time.

When the final experience modifier is received it can be compared to the computed modifier to see if there are any discrepancies.  If there are make sure that the correct information was reported by the insurance carrier in order to compute the modifier.  Items that should be checked include:

-The reported losses are correct.  Sometimes the carrier includes amounts reserved for losses on claims that have been closed

-Payroll amounts and classifications are correct

-Ratings have changed between the time the computed modifier was calculated and the final modifier was calculated

Contact you insurance agent if you have questions or need assistance.  As always, one of the insurance professionals  at Jerry Hay, Inc. will be happy to speak with you.  Contact us today for more information.

Changes in the Way Work Comp Experience Modifiers are Computed Could Have a Big Impact on Your Business

The National Council on Compensation Insurance (NCCI) is phasing in a new way to calculate Experience Modifiers that will have a big impact, especially for companies that have recently suffered large workers compensation losses.

An Experience Modifier is an adjustment made to a work comp premium based on the loss experience of the employer.  If the employer has a loss history that is lower than expected for the type of work being performed then they will receive a credit (reduction) to the amount of premium paid in comparison to an employer with losses in line with industry averages.  In the case of higher than expected losses, the employer receives a debit(increase) in premium.

The purpose of this system of credits and debits is to encourage safety practices by rewarding employers who control their losses, while penalizing employers who have adverse loss experience.  One of the key principals in calculating the experience modifier is that it penalizes employers with a high frequency of incidents versus an employer with a small number of severe losses.  This is done in the calculation by establishing a “split point” in the claim amount.  Any loss amount below the “split point” is considered the “primary” portion of the claim and any amount over the “split point” is considered excess.  The formula considers all of the “primary” portion of the claim in the calculation but only a small percentage (typically 5%-15%) of the “excess” portion.  Therefore if you are an employer with 100 claims of $1000 each you would have a much higher experience modifier than an employer who had 1 claim of $100,000.

Starting on 01/01/2013 the split point was raised from $5,000 to $10,000 and it will increase over the next two years to $15,000 by 2015.  What this means for employers is that more of the claim amount from a large loss is considered in the “primary” portion of the calculation.  This could have a big impact on your experience modification going forward and will result in an increase in premiums if you have suffered large losses in the past 4 years.

What can be done if you are in this situation?  There may be ways to work with your workers compensation carrier to reduce your premium or keep it from increasing.  Don’t hesitate! contact your insurance agent for more assistance and as always one of the insurance professionals  at Jerry Hay, Inc. will be happy to speak with you.  Contact us today for more information.

Additional  Resources:

Rating Auto Insurance

Every state requires that a vehicle owner show that they have proof of financial responsibility for an accident they cause.  This can be handled by posting a bond, but typically owners apply for insurance coverage.

There are two important types of risks that every vehicle owner must consider: 1) your liability for injury and property damage to others and 2) damage to a vehicle that you own.  When an insurance company determines how much your premium will be they look at a variety of factors to determine the probability that you will be involved in an accident and if so the cost to the company for damage to your vehicle and the other party(ies) involved.

Some of the factors that influence your premium include but are not limited to:

  1. Coverage limits and deductibles – Higher limits for liability and property damage will increase premiums.  A higher deductible typically results in lower premiums.
  2. Vehicle usage – Average drive distance and how far the vehicle is driven in a year have an affect on the probability of the vehicle being involved in an accident.
  3. Where the vehicle is parked and driven – parking and driving in urban areas tends to raise the probability of a claim
  4. Driving record – drivers with a history of tickets and accidents present a greater risk to the insurance company.  While the cost of a previous claim may be of interest to a carrier they usually more concerned about the number and frequency of incidents.
  5. Demographic factors – These include things such as age, sex, and marital status.  Your state may limit what demographic factors the carrier uses, but there are ways the carrier can attempt to get around these limitations (see number 6).
  6. Credit score – . Studies have shown that credit history is a powerful predictor of future auto insurance losses, and so your score is one of many factors that insurers might use to calculate risk.
  7. The vehicle you drive – data from claims and crash reports are used by carriers to determine a safety rating for your vehicle.  Carriers will also look at how expensive your vehicle is and the typical costs to repair crash damage.

In future posts we’ll discuss how you can control some of these factors in order to obtain the best coverage for your premium dollars.  If you would like assistance with your auto coverage please contact one of the insurance professionals  at Jerry Hay, Inc.  We will be happy to assist you in any way possible.