CA WORKERS COMPENSATION
You can Take Control of Your Workers Compensation Premiums.
Even the Best Workers Compensation plans regularly fall short of delivering the benefit to businesses that they hope for. The California Workers Compensation marketplace is a complicated maze of Anecdotes, and Smoke and Mirrors that leave nearly all business owners with as many questions as answers.
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What is Experience Rating?
The intent of Experience Rating is to provide a multiplier/factor by which Workers Compensation insurance premiums can be more adequately charged to businesses based more closely to their risk/hazard level. Ideally a business with ZERO claims should pay a lower Rate as compared to a business with multiple Workers Compensation claims/injuries.
The WCIRB created the Experience Modification Rating Factor, also known as the “X-Mod”, “Mod”, “ERM” (Experience Rating Modifier), as a means to REQUIRE carriers to account for the approximate level of risk of each insured/business – which in turn should eliminate the majority of Gamesmanship in rating of individual policies.
HOW DOES MY X-MOD IMPACT MY PREMIUM?
- X-Mod is Less than 100 (1.00): Considered a “Credit” X-Mod in that the business will receive a credit from the factor on their Workers Compensation Premium. Example: A business with an X-Mod of 0.87 would result in the business receiving a rate that is 13% lower than that of an “average” business.
- X-Mod is 100 (1.00): Considered a “Neutral” X-Mod in that the business will not receive either a credit or a debit from the factor on their Workers Compensation Premium. Example: A business with an X-Mod of 1.00 would result in the business receiving a rate that is the same as an “average” business.
- X-Mod is Greater than 100 (1.00): Considered a “Debit” X-Mod in that the business will receive a debit (or surcharge) from the factor on their Workers Compensation Premium. Example: A business with an X-Mod of 1.13 would result in the business receiving a rate that is 13% higher than that of an “average” business.
The Experience Modification Factor Calculation
Businesses that are experience rated are now subject to California’s New Variable Split Point Experience Rating System. This means that as their payroll and operation grows, so will their Primary Loss Threshold.
The WCIRB recently adjusted its way of calculating an organization’s X-Mod by doing away with the fixed value for the Primary Threshold for Losses and replacing it with a formula that creates a sliding scale, Effective January 1, 2017. This sliding scale is intended to give a larger Primary Threshold to larger employers (i.e. Organizations with larger payrolls).
The impact we’ve seen has been a compounding of the impact/magnitude of losses on an organization’s X-Mod, which in turn equates to a similar impact to their Workers Compensation premium.
We recently witnessed one of our Nonprofit clients have an increase in their X-Mod of nearly 15% due almost entirely to the change in the calculation. We’ve been working diligently with this Nonprofit as they have approx. 50 employees and volunteers and this 15% increase in their X-Mod will result in an increase in Workers Compensation premium of no less than $18,000 for just this year alone.
Workers Compensation – A Finance Mechanism
Unlike most business insurance policies, a Workers Compensation is better thought of as a Finance Mechanism. Most Business Owners typically pay 2-3x or more for the amount paid out in a Workers Compensation claim over the 4-5 years following the date of injury by way of higher insurance premiums. For example, if a business is paying $10,000 per year in premium and sustains a Workers Compensation claim paying $100; that business will pay $200-300 or more in additional premiums over the following 4-5-year period.
How to Control Your Costs
There are many ways to improve the cost structure of your Workers Compensation Program. Through and Active and Collaborative working relationship with your Agent/Broker and other providers the following items can be implemented to improve your position in terms of premium bargaining. The following is a partial list of strategies to move your business from acting in a Reactive way and to move to the PROACTIVE.
Many are at little-to-no out of pocket cost to you!
- Active Claims Management: Oversee claims as they are reported and proceed to ensure accurate reporting
- Experience Modification Factor Analysis: Provide insight into what is driving the Workers Compensation premium cost changes
- Experience Modification Factor Projections: Provide guidance as to what the factor will be for the coming year to allow for preparation and planning
- Regular Loss Run Review: Routine review of active claims to ensure accuracy of reporting and minimize overstated figures that can cause higher premium costs
- Safety & Compliance Programming: OSHA (Cal-OSHA) mandated safety training; including materials, courses, and documentation
- CPR & First Aid Compliance: Reduce the severity of catastrophic claims by having employees trained in how to respond
- Consolidated Coverage Review: Ensure that claims are reported properly and that duplication across multiple coverage lines does not happen.
The goal of the above programs and others is to protect your business from having unnecessary Workers Compensation Claims, and to protect your performance as interpreted by the Workers Compensation Insurance Companies that will be vying for your business year after year.
Workers Compensation Savings: Easy as 1, 2, 3
- Fewer (lower Frequency) and Smaller (Lower Severity) Claims are the key to reducing your insurance cost.
- Take Proactive, and NOT reactive, approach to addressing hazards that can cause injuries/claims.
- Train, Educate, and Take Care of your workforce and they’ll take care of you.