Why do Work Comp Rates Vary from state to state?

Citizens of the United States enjoy a very high quality of life. According to a 2016 Business Insider Article, Americans enjoyed the 9th highest quality of life of any country in the world. Workers’ compensation coverage is a huge contributing factor to this quality of life. A strong workers’ compensation system provides the ‘exclusive remedy’ that helps prevent litigation between employers and employees when accidents happen on the job. When a strong Workers’ Compensation System is in place, employees are guaranteed some wage replacement while hurt and not able to work. Employees also receive payment for all medical expenses as a result of injuries that occur as a part of normal business operations. In turn, employers can rest easy knowing they will not be held liable for employee injuries, except in circumstances where the employer intended to cause the injury or was willfully negligent.

Work Comp Rates

In the United States, Workers Comp Laws are left up to the state governments. In most states, employers are required to carry workers’ compensation insurance. There are a few exceptions to that rule, but for the most part all employers are required to carry some baseline coverage to protect their injured workers.  There are many things a state government must do to administer a workers compensation system. The two main things states do that can effect price are; determine a process for assigning rates on industry class codes and provide employers with a provider of last resort (state fund or assigned risk provider).

Provider of Last Resort

Rates can be strongly impacted by the strength of the provider of last resort. This is frequently referred to as the state fund or the assigned risk provider. The assigned risk provider is offered to employers who cannot find a carrier to offer them coverage on the open market.  The business may not be able to find coverage on the open market because of their past claims history or because they operate in a high risk industry.  How well the state goes about setting up this relationship goes a long way towards determining the rates employers pay for coverage in that state.

There are three main ways states go about providing this service.

  • State provided fund
  • Public-Private Partnership
  • Partner with an outside agency

The Workers’ Compensation Fund of Utah (WCF) and The California State Compensation Insurance Fund (CSCIF) are two examples of states who provide their own fund. These two states area good comparisons to show how rates are affected by either a strong or weak state fund. In Utah, The WCF has a 57 percent market share while the next largest provider owns only a 3 percent share of the market (2). In comparison, The CSCIF controls just over 11 percent of the market compared to just under 10 percent for the next largest provider. As a result, Utah has workers comp rates that are 107 percent cheaper compared to California. This is not the only contributing factor to the discrepancy in prices, but it goes to show how drastic an impact a strong state fund can have. Now in California’s defense, the Gross Domestic Product (GDP) in Utah is nearly 1.7 trillion dollars less than California (2). That is another huge factor driving up prices in California.

 

Another factor impacting rates on workers’ compensation insurance is how a state goes about determining rates on all the different industry classification codes. There are two ways states can go about providing this service. They can provide their own rating bureau or they can partner with an outside agency to do this in-depth work. Most states partner with the National Council on Compensation Insurance (NCCI) for determining rates on class codes. A few states have an organization that is part of the state government who determine rates.

Determining Rates on Class Codes

New York and Arkansas are two contrasting states that are a good example for how these different approaches can effect the rates on workers comp coverage. New York has its own bureau, The New York Compensation Insurance Rating Board (NYCIRB) while Arkansas outsources these duties to NCCI. As of 2014 Arkansas has rates on Workers Comp Coverage that are 90 percent cheaper than those rates in New York. Now again in defense of New York, it does have a GDP that is just under a trillion dollars more than Arkansas. That is a strong factor contributing to higher rates, but so is the fact that New York does not use NCCI to determine rates. Typically states who have their own bureau have higher rates across the board. In most cases, NCCI is better at doing this task than the states are themselves. The one exception to this is the state of Indiana. Indiana has their own state rating bureau, but enjoys some of the lowest rates on workers comp in the country.

In both of these examples the larger states have different ways of going about administering their workers compensation policies. These different ways contribute to escalating rates on workers’ compensation insurance. Now part of the reason for them doing things differently might be the vast size of the economies in these state’s. They may not be able to outsource this job for an economy in the trillions of dollars where as another state may be able to outsource more easily because their economy only amounts to 100 billion. Both of these examples do show how the strength of the state fund and how efficiently a state determines rates can drastically effect the amount employers pay for workers comp coverage.

These factors are two of many factors that can have a huge impact on rates employers pay for workers comp coverage. This is why it is immensely important to consult with an insurance industry professional when quoting a policy. It is also important to quote with agencies who have access to many different insurance carriers within your state. The more carriers your agent can get a quote from, the more likely your businesses is to get more comprehensive coverage and lower rates on premium.

3 TYPES OF CYBER INSURANCE EVERY BUSINESS SHOULD HAVE.

What if my business does not deal with computers.  Does that mean I really don’t need Cyber Liability Insurance?  What if I am the only person in my business who uses a computer.  Doesn’t that mean I don’t face all that much risk?  Let’s say I might need Cyber Insurance, but what kind and how much?

Do any of these statements sound familiar? If so, you definitely need Cyber Liability Insurance. The term Cyber Liability Insurance is used pretty generally because cyber security is such a young sector and the data about the risks are changing very rapidly.  Business owners and insurance companies are still having trouble determining who is at risk and how much risk those businesses actually face. Just because this is a new type of insurance coverage does not diminish the importance it can have for protecting your business.

Many business owners think a data breach can only occur to a big multi-national corporation. For the big data breaches that make the news, this is certainly true, but the truth is most data breach first start out with small mom and pop businesses. These mom and pop businesses are first hacked with the hackers intention of gaining access to a much larger database.  This usually occurs through carious types of vendor partnerships. In the case of Target and Home Depot both of these breaches were first accessed by a much smaller business partner, who was hacked.  For this reason it is immensely important for you to talk with an experienced independent insurance agent about all the risks your business faces.

Cyber Liability Insurance

The three main types of Cyber Liability Insurance Coverage are Cyber Security, Cyber Liability and Technology Errors and Omissions Insurance. The first two deal with risks relating to a Data Breach. The third deals with companies that provide technology services and products.

Cyber Security

Cyber Security Insurance is also known as Privacy Notification and Crisis Management Expense Insurance.  This coverage includes coverage for first party damage to you and your business. This coverage does not protect your business from damage done to third parties. Cyber Security Insurance deals specifically with the immediate response costs associated with a data breach. In many cases it is required by law to find out how the breach occurred, notify those affected and provide credit monitoring services for one year.

Examples of costs included in Cyber Security Coverage include:

  • hiring a forensics expert to determine the cause of the breach, suggest measures to secure the site and prevent future breaches

  • hiring a public relations agency to assist in dealing with the crisis

  • setting up a post-breach call center

  • notifying affected individuals whose personally identifiable information (PII) has been compromised

  • monitoring these individuals’ credit (usually for 1 year)

  • paying the costs to “restore” stolen identities as a result of a data breach (e.g., expenses of notifying banks and credit card companies)

Cyber Liability

Cyber Liability Insurance, also termed Information Security and Privacy Insurance, covers the insured’s liability for damages resulting from a data breach. It does not cover expenses that deal with the immediate response cost. This type of insurance protects businesses which sell products and services directly on the internet.  Also, it protects businesses which collect data within its internal electronic network. The most common forms of data breach involve personal or financial information like credit card numbers, bank account information, social security numbers, health information, trade secrets or intellectual property.

The types of situations where this information are accessed include:

  • An employee’s car is broken into and a business laptop is stolen.

  • An email containing sensitive customer information is sent to the wrong person.

  • Important paperwork, like a credit application, is taken during a break-in.

  • Failure to timely disclose a data breach.

Technology Errors and Omissions

Technology Errors and Omissions Insurance, also referred to as Professional Liability or E&O, is a form of liability coverage that protects businesses who provide or sell technology services and products. This coverage prevents businesses from bearing the full cost of defending against a negligence claim made by a client, and damages awarded in a civil lawsuit. This can include business who sell and service computer products, but it can also include graphic designers and advertising agencies who create digital content that can harm a company’s reputation. It covers computer programmers who may create faulty code for a website that causes that business to mail products to the wrong addresses.

Cyber Liability Insurance is a new and emerging part of the insurance industry and it is not going anywhere. These risks are only going to become stronger as more and more business operate online. Before too long Cyber Security Insurance will be a normal part of businesses insurance policy just like workers compensation Insurance and general liability Insurance are today. Now is the time to consider if and how much cyber insurance your business needs.

3 Factors Affecting Your General Liability Insurance Rate.

Many business owner’s and managers frequently wonder what goes in to their General Liability Insurance Rate for their small business. Many compare their costs with fellow business owners or friends and family who run other businesses. Depending upon your industry, this may cause some shock when they find out how much more they pay than other businesses in different industries. Every state and every insurance company determines their own way to determine your businesses General Liability Insurance Rate. There is not one set in stone way to determine how much to charge for coverage.  There are three main factors that weigh heavily on what you pay for General Liability Coverage: The size, the class code and the loss history of your business.

Find tips to positively impact your general liability insurance rates at My Insurance Question.com

The size of your business

For most businesses this is the physical dimensions of your property times a number determined by your classification code. The condition and age of your property mean a lot for this rate as well.  Underwriters will examine the age and complexity of the construction.  Whether the building is up to code means a lot to the insurer. Generally, newer construction lowers your rate, while older construction tends to raise your businesses General Liability Insurance Rate.

Class Code

General Liability Insurance Class Codes are determined by the activities your business partakes in. In order for this to be accurate, it is important to be honest with your agent about everything your business does and does not do on a daily basis. You can understand the differences in risk from a accounting office compared to a rooking business.  Even small differences in a business can have an effect on your class code.

Take for instance commercial versus residential cleaning businesses. Commercial cleaning businesses typically have employees who drive to one location, clean the building and go home. A residential cleaning business typically has employees who are going to more than one residence throughout the day. These employees are driving to and from each residence. While driving between locations, the business is liable for any accidents that occur. This elevates the risk for covering this business and will in turn cost more. This is why it is very important for you to speak long and honestly with your agent in order to be placed in the proper class code.

Loss History

The final factor that impacts your general liability insurance rate is your businesses loss history. This depends upon the industry and the operations of your business. For some industries, it is common to have many small accidents. A restaurant is be a good example of a business that might have a lot of small occurrences. This is because the frequency and amount of customers coming in and out of the restaurant.  Slips, trips and falls are common in these industries. If your business tends to have a larger amount or more severe incidents during a recent year, it may cause your rate on premium to go up. Another thing to consider if you have had some claims in the recent past is what type of formal safety program does your business have in place. If you have a well documented safety program in place, your agent may be able to explain some incidents as freak occurrences and not a sign of an underlying problem that makes your business more of a risk.

There are several other factors that go in to what you pay for your General Liability Insurance Rate, but the size of your business, your class code and your loss history are the main factors that determine what you pay. Staying on top of these three factors can go a long way towards preventing your business from paying too much for General Liability Insurance.

3 Benefits of a Business Owner’s Policy.

What is a BOP?  If you work in insurance long enough, this becomes a question you receive quite frequently.  Many small businesses shop their policy around themselves to many different insurance companies. This can save those businesses some money, but it does come at the expense of the business owner’s precious time. Most insurance companies attempt to remedy this problem by offering a Business Owner’s Policy (BOP).

Find the answers to your questions about a Business Owner's Policy at My Insurance Question.com

A Business Owner’s Policy is an insurance package designed for businesses in a particular industry. These packages can be adjusted to fit the needs of each individual business, but they most commonly come in packages specific to each industry.  Over time, insurance companies have found certain coverages are needed by all businesses in a particular industry.  Because they have a unique insight in to the loss history of many businesses in that particular industry they tend to recommend a certain package of policies for that industry.  By offering a business owner’s policy, insurance companies can make sure there are no gaps in coverage.  At the same time they can make sure the business is not carrying too much or unnecessary coverage. Carrying a BOP benefits a business owner in three main ways.

Pricing

Pricing is one of the first aspects that attract business owner’s to choosing a BOP.  Insurance carriers are more likely to give businesses a discount if they know they are going to sell a business multiple policies. Business Owners can do the shopping for themselves, but they have to spend time searching for better coverage and price instead of working on their business. With the help of a good independent insurance agent, a business owner can allow the agent to shop the policy around to many insurance carriers. This allows the agent to negotiate the best price and the most complete coverage. For this reason, it is important to choose an insurance agent who has relationships with many insurance providers, not just a select few. Many agencies work exclusively with just a few carriers and this does not allow the agent to shop around your policy if you are in a tough classification code or have a negative claims history.

No gaps in coverage

Another great reason to consider a BOP is to ensure there are no gaps in coverage. Shopping for your policies individually might save a business a few bucks on the front end, but it be very detrimental to your business when a claim occurs.  This is a portion of the insurance industry where a few grey areas occur. When an incident occurs and a business has policy from many different carriers, at best they business will have to wait additional time while the carriers determine who is liable for the claim.  At worst, having several different carriers can cause the claim to not be covered at all.  On the contrary, if the policies are all with one carrier, the underwriter will just determine which policy needs to kick in and then processes the claim.  This is because, if you have a BOP with just one carrier typically there is General Liability, Professional Liability and an Umbrella policy. In this case the insurance company just determines which policy is in effect and processes your claim. When every policy is carried with one insurance carrier, that carrier can ensure there are no gaps in your policy.

Certificates

The final way businesses benefit from carrying a Business Owner’s Policy is when there is a need for a certificate. This occurs when businesses are involved in projects they are contracted on. Many artisan contractors do work for several general contractors. Take an electrician as an example. For each general contractor an electrician does a project for they need a certificate proving insurance coverage. If each coverage is with a different carrier that is an additional call the electrician has to make. If that electrician has a BOP they call one agent and can get a certificate for all of their policies.

These are three of the many benefits business owners get when they go with a Business Owner’s Policy. BOP’s are a win-win situation because the insurance company benefits from more business while the business owner benefits from having better service, more complete coverage and usually a better price. When in need of a business insurance quote it is also important to consult with an insurance agency who partners with many carriers. This will allow their agents to shop the policy to more carriers and ensure your business is getting the best coverage at the absolute lowest rates in the industry.

Insurance Tips for your Lawn Care Business

According to the National Association of Landscape Professionals, the Lawn Care and Landscaping Industry amounts to $78 billion as of 2016.  This is an enormous part of our economy that employs nearly a million people. Because of the vast size of this industry there is a huge amount of risk being taken on by businesses both big and small.  Because of these risks there are an equally big market for the insurance industry to help these businesses to properly protect their businesses.  Here are three tips for how to properly protect your lawn care business.

 

How does a lawn care business owner find the best insurance coverage for their Lawn Care Business?

There are many things that go in to finding the best insurance policies for your business depends on may aspects.  Most of those aspects deal with factors that are unique to you and your business.  For example, one business owner may be comfortable with more risk than another. The help of an experienced independent agent can help you determine just how much risk your business faces and how best for you to protect your business from those risks.

Once you have found a good agent, it is equally important to take a little extra time to speak long and honestly about everything your business does and does not do.  There are numerous classification codes for the landscaping industry and classifying your business improperly can impact your rate on premium tremendously.

 

How can a business owner find the best price on insurance coverage?

Once a business owner has found a good insurance agent and has spoken with that agent about all the ins and outs of their business, it is important to ask for all credits and debits that your business qualifies for.  The best way to do this is to be direct.  If price is what you value than tell your agent that is what you value. Insurance agents interact with many different people from all walks of life.  Not all business owners value getting the absolute best price on coverage. If this is important to you than express that to your agent and they should be able to find the most suitable coverage.

 

What do I do when I have and claim and am forced to use the insurance policy?

It is normal for an entrepreneur to be confident.  Many of those same confident entrepreneurs have an affinity to assume bad things are not going to happen to their business. The only true way to prevent this is to take the proper steps within your power to prevent and be prepared for when disaster strikes.  A major part of that preparation is to have proper insurance in place.  Once you have the proper policies in place, it is important to take pictures of all the equipment and property you have covered.  This can prove the state of the equipment before the occurrence.

After securing the proper policies and documenting the state of your covered assets, you need to have policies and procedures in place for how to report an occurrence when a disaster strikes you business.  You should have all managers on duty trained to be prepared for all bodily injury occurrences.  You should notify both your agent and the carrier when you have a claim.  Do not be upset if your agency informs you to contact your carrier.  It is the job of the carrier to process the claim, not the agency.  At the same time, it is important to keep your agency in the loop in case the carrier is not living up to their end of the bargain. Many medical facilities are not prepared to process the workers compensation system. Your carrier can help you find the proper facilities in your area to provide the best coverage to your inured employee or customer. This can drastically limit the severity of a claim and it can allow your injured worker to get the best care without the least amount of doctors’ visits possible.

Keeping the injured worker on your side is important to getting them to return to work and limiting the severity of the workers’ comp claim.  If this process runs smoothly it will make your employee happy and motivated to return to work and it will help your insurance carrier to limit the amount of the claim and prevent too much damage to your businesses experience modification rating.

 

 

Insurance Tips for Lawn Care and Landscaping

There are many aspects to owning a landscaping business. Many aspects that have nothing to do with the actual work itself. Whether a business owner is dealing with finding the right employees, determining the right price to charge their customers or managing the day to day operations; there are always additional responsibilities pulling the business owner in a different direction.  One aspect that frequently gets looked over is purchasing commercial insurance for your landscaping business.  Here are five tips for finding the best insurance, saving money when purchasing coverage and how best to use your policy when a disaster occurs.

Get the answers to your Lawn Care and Landscaping Insurance Questions at My Insurance Question.com

Partner with an independent agent

Independent insurance agents are unique in that they can quote you policies from many different carriers and not just one or a select few.  The appetites of the carriers change from year to year for certain coverages and especially for different industries.  Some years, your premium may go up simply because the carrier has experienced a lot of losses in your industry of the last year or couple of years. As a result they raise the prices for that classification code.  Another carrier may not have experienced the same losses and may be more hungry to quote your policy.  An independent insurance agent has the ability to force carriers to compete for your business.  In the end this helps you get better coverage at rock bottom prices.

Make sure you are in the right class code

The Lawn Care and Landscaping Industry is an industry that has numerous general liability classification codes. If you do not give enough information to your agent, they are forced to guess exactly how much risk your business takes on. It is in their best interest to always assume more risk. Assuming more risk protects the insurance agency, but may cost your business more in unnecessary premium. These mistakes usually get fixed in the end of term audit, but even when corrected you still have tied up cash in unnecessary premium throughout the year.

What coverages can I do without?

Once you have taken care of finding a good agency to partner with and you have taken the time to make sure you are classified properly, it is important to ask your agent what coverage’s does your business absolutely need and what coverage’s your business may be able to do without.  At this point it is important to remember the agent works for you.  If you are honest with the agent about how much risk you are willing to take, they should be able to give you the proper information to cover your business as you prefer.  It is important to remember that insurance agents not only interact with business owners when they are selling coverage, but also when the worst of the worst has occurred.  The agent may be offering you an extra coverage because they have interacted with a business owner in the past who had a claim occur at their business where they were not covered. Those are never easy conversations to have.  Depending upon the size and severity of the disaster having the right coverage may be the difference between your business closing the doors for a week and never opening again.

Ask for available credits and debits

The best way to find the best price on coverage is to tell your insurance agent what you value in the buying process.  Insurance agents talk with many different people from many different walks of life.  One customer may want to get through the insurance buying process as fast as possible so they can get back to running their business.  Another business owner may not mind if it takes a day and a half of their time in order to save an additional five percent.  Let the agent know early and often what you value.

What do you do when your business has a claim?

It is common for a business owner to think bad things will not happen to their business, but the most successful businesses are those who have a plan in place for when things go wrong.  Part of that plan should be having the proper insurance policy in place.  When an occurrence eventually takes place, there are several steps you as a business owner can take to speed up the process of getting your claim paid and get your business back up to normal operation.

When you do have to make an insurance claim it is important to inform both your carrier and your agency.  Do not be upset if your agency informs you to contact your carrier.  It is the job of the carrier to process the claim, not the agency.  At the same time, it is equally important to keep your agency in the loop.  In the unfortunate case the carrier is not living up to their end of the bargain, the agency can contact them on your behalf.  If you have injured workers, make sure they are going to medical facilities that are properly prepared to process the workers’ compensation system within your state.  Your carrier can help you find the proper facilities.  This can drastically limit the severity of a claim and it can allow your injured worker to get the best care quickly.  The better care they get can result in the getting back on the job quicker and with the least amount of doctors’ visits possible.  Keeping the injured worker on your side is important.  If this process runs smoothly it will make your employee happy and motivated to return to work.  It will also help your insurance carrier by limiting the amount of the claim.  THis will prevent too much damage from being done to your businesses experience modification rating.  The Experience Mod is one of the main ways carriers determine how much they will charge you for premium.

Do not be alarmed if a claim stays open for a period of time after your business has gotten over the claim.  Insurance agents do this in order to not have to open a second claim.  A second claim will also impact your experience modification rating.  The carrier does this because an injured worker may return to work and reinjure themselves.   Sometimes this can happen weeks or even months after the injured worker has returned to work.  If this causes your business to file a second claim it can have a damaging effect on your rating resulting in a higher rate on premium.

 

Your Experience Modification Rating Explained

A simple and concise explanation of your businesses Experience Modification Rating.

Experience Modification Rating

Understanding your experience modification rating is important, and can help reduce insurance premiums for workers compensation insurance. The experience modification rating goes by a variety of names including experience mod, experience rating, e-mod, EMR, and sometimes just the mod.  It is a factor that compares your business’ losses with other businesses in the same classification, and has the ability to increase or decrease your premium cost.  The experience rating is used to customize the insured’s premium to better suit the characteristics of a certain employer or risk.  It is found on the Experience Modification Rating Worksheet that you will receive each year before your policy effective date.  An experience rating of 1 is considered a unity mod, and does not change the cost of premium.  A rating that is >1 is called a debit mod, and would increase the cost of premium.  On the flip side, a mod that is <1 is referred to as a credit mod, and would reduce the cost of insurance to the employer.  So if an employer has a mod of 0.80, their premium would be 20% cheaper.  The idea being that an insured with a mod that is >1 is riskier than the average, and should therefore have to pay more.  While an insured with a mod that is <1 is less risky than the average, and should be rewarded by paying less. 

Manual Premium Experience Modification Rate Premium charged to employer
Employer 1 $250,000 .75 $187,500
Employer 2 $250,000 1.00 $250,000
Employer 3 $250,000 1.25 $312,500

As seen above, a credit mod (E-Mod value is <1) provides the employer with a cheaper premium.  While a debit mod causes the employer to pay a higher premium, and the unity mod causes no change in premium at all.  This change in premium provides incentive for employers to reduce and control losses in order to lower their experience mod.

Who calculates the employers experience modification rating?  The experience mod factor is generated by the National Council on Compensation Insurance (NCCI).  The mod is generated 60 to 90 days before the rating effective date, and therefore doesn’t use the current policy in the calculation.  The NCCI uses a period of three years of loss experience and compares it to the average losses in the class.  The time period that is used for data is determined by the risk’s rating effective date.  The data that is used in the experience mod rating calculation will include the policies that have an effective date that is no less than 21 months prior to the rating effective date, and no more than 57 months before the rating effective date.  In other words, policies that begin within 21 months and 57 months before the rating effective date will be used in the calculation.  For example, a policy that renews on 1/1/17 would include policies with effective dates that fall between 4/1/12 and 4/1/15.  Therefore, the policies that would be included in the data for the experience mod would be the 1/1/13-1/1/14, 1/1/14-1/1/15, and 1/1/15-1/1/16 policies.

As of 2017, the NCCI’s Experience Rating Plan manual for Workers Compensation and Employers Liability Insurance (the “Plan”) is currently approved and authorized to use in 39 jurisdictions.  Right now the Plan applies to Indiana, Massachusetts, and North Carolina, however these states have bureaus that produce their own intrastate ratings.  An “intrastate” rating refers to a risk that is only in one state that uses the Plan.  By contrast, an “interstate” rating refers to a risk that is located in two or more states that use the Plan.  Minnesota, New York, and Wisconsin have also authorized the use of the Plan, but only on an interstate basis.  The Plan does not apply to California, Delaware, Michigan, New Jersey, Pennsylvania, North Dakota, Ohio, Washington, and Wyoming.  These states administer their own plans and produce their own rates.  However, since insurance is regulated on a state-by-state basis, the states that currently approve or disapprove the Plan are always subject to change.

 Find the anwers to your most difficult questions about your businesses Experience Modificaiton Rating at MyInsuranceQuestion.com

The experience modification rating is a mandatory plan if the insured is qualified.  In order to qualify for an experience rating the insured must have paid a minimum amount of premium determined by the state within the most recent 24 months of the rating period, or have reached an average amount of premium that meets the established threshold over the entire rating period.  For example, the state of Florida requires that an employer must pay at least $10,000 in premium within the last two years, or have paid an average of $5,000 over the entire rating period. 

Employer 1: Employer 2: Employer 3:
2015 – $7,000 2015 – $4,500 2015 – $4,000
2014 – $3,500 2014 – $4,100 2014 – $5,000
2013 – $2,000 2013 – $6,500 2013 – $4,500
Qualification requirements are met in the two most recent years. ($7,000+$3,500= $10,500) Qualification requirements are met by averaging the premium over 3 years. ($4,500+$4,100+$6,500)/3= $5,033 Qualification requirements are not met.

In this example, Employers 1 and 2 would be required to apply an experience mod to their manual premium, and Employer 3 would not qualify.

The difference between claim severity and frequency.  When referring to an employer’s loss history, the terms severity and frequency are often brought up.  Severity meaning how severe, or how expensive a single loss is, and frequency meaning how often claims occur.  When calculating an experience mod, the NCCI assigns more weight to high frequency claims than it does to high severity claims.  The logic being that if the insured has a history of a high frequency of claims, then there is a good chance the insured will continue to have losses.  Also, having a high frequency of claims increases the chance that the insured will experience a larger loss in the future.  In other words, frequency leads to severity.  However, if the insured only has one claim with a high severity, there is a good chance that it was a more uncommon accident or injury that is unlikely to occur again.  The NCCI gives more weight to the frequency of claims by using the Split rating system.

 

Split Rating. NCCI uses split rating to divide losses incurred by a claim into Primary Losses and Excess losses.  This is done so that the frequency and severity of claims can be weighted properly.  Primary losses represent frequency, whereas excess loses represent severity.  In the calculation of the experience modification rating, primary losses are weighted more than excess losses.  However, the excess losses shouldn’t be ignored as they can be a very large amount.  The NCCI uses a ratio called the Discount Ratio (D Ratio) to find the expected primary losses by multiplying the expected losses by the D Ratio.  To find the expected excess loss, they multiply the expected losses by 1 – the D Ratio.  When finding the actual primary losses, as of 2017 the NCCI considers the first $16,500 of a claim to be the actual primary loss, and anything leftover to be the excess loss.  If the claim is less than $16,500, the entire claim is considered primary loss.  The amount of money that is used as the cutoff point for primary losses is referred to as the split point.  The split point is a value that is subject to change.  In 2013, the split point was increased from $5,000-$10,000, and by 2017 it has climbed to $16,500 where it stands today.  The split point will continue to change in the future based on inflation and loss data.

 

The experience modification factor is calculated by taking the total adjusted actual claims divided by the total adjusted expected claims of your class.  So if you have more actual claims than what is expected of your class, the mod will be >1 and you will receive a debit mod.  While this seems simple enough, there are many complicated steps that are taken before the final mod is produced.

First, the NCCI collects and records the payroll and loss information on to an experience rating worksheet.  Using this information, they calculate the expected losses for each classification using its Expected Loss Rate (ELR).  The ELR is the amount of expected losses for the classification per $100 of payroll.  So the expected losses equals the ELR x (Payroll/100).

Then they split the expected losses into primary and excess losses using the discount ratio.  After that, they must also split the actual losses into primary and excess losses.

To keep the mod from varying too much, the NCCI determines a stabilizing value and adds it to the calculation.  This calculation requires the use of the ballast factor and the Wt factor.  The ballast factor is a number that is added to help keep the mod from shifting too much, and the Wt factor is the weight assigned to the excess losses.  The stabilizing factor is calculated by multiplying the expected excess losses by (1-Wt), and then adding the ballast factor.

Once the primary losses and the stabilizing value has been found, the actual and expected ratable excess losses must be determined.  The ratable excess loss is the amount of excess loss that is included in the calculation.  This is done simply by multiplying the excess losses by the Wt factor.

Now that we have determined these values, the total adjusted actual losses can be found by adding the actual primary losses + the stabilizing value + the actual ratable excess losses.  Likewise, the total adjusted expected losses = expected primary losses + the stabilizing value + the expected ratable excess losses.

Finally, the experience mod can be calculated by dividing the total adjusted actual losses by the total adjusted expected losses.

E-Mod=(Actual Primary Loss+Stabilizing Value+Actual Ratable Excess Loss)  ÷  (Expected Primary Loss+Stabilizing Value+Expected Ratable Excess Loss)

E-Mod = Total Adjusted Actual Losses ÷ Total Adjusted Expected Losses  

 

Medical-only claims are not weighted as much in the calculation, and therefore don’t have as much of an impact on the experience mod.  Most states have approved an Experience Rating Adjustment (ERA) that limits the amount that medic-only claims are weighted in the experience modification rating.  Only 30% of the portion of a medical-only claim is included in the experience mod calculation.  This is done in an attempt to decrease the incentive for employers to pay off medical-only claims without reporting it to the carrier.

There are ways for employers to lower their experience mod, and therefore lower their workers compensation costs.

  • One effective way to do so is to implement a formal safety program, or make meaningful changes to a pre-existing safety program. Having a written safety program in place can help reduce injuries and accidents which will reduce your losses, and lower your experience mod.  An employer should train their employees in the proper safety procedures for driving, lifting and other job related duties.  As well as the precautions taken to prevent accidents like slips and falls, such as requiring non-slip shoes.  An employer can even consider incorporating rewards and disciplinary actions in their safety program, if it seems necessary.
  • Maintaining good hiring and orientation practices can also help reduce losses. Making sure each employee is mentally and physically fit for the job before hiring them is a good way to lower accidents.
  • Including a mandatory return to work program can greatly reduce the cost of claims. Having an employee return to work at a light or modified duty will lower the cost of their claim, which can help lower the employer’s losses and will bring their experience modification rating down.
  • Taking the time to make sure all your employees are placed in the correct class codes can also help reduce costs.

Workers Compensation Insurance in California

What makes the Workers’ Compensation Insurance System in California unique?

California Workers' Compensation Insurance

 

California is currently the most expensive state in the country for employers workers compensation coverage. Rates throughout the state have continued to rise over the past 10 years. Much of the increased costs are caused by the rising costs of medical coverage and state laws.

State law, like in most states, requires all employers to provide workers compensation coverage to all employees of a particular company.  Failure to purchase workers comp coverage is a criminal offense in California. Employers may receive a fine of $10,000 or more and up to a year in a county jail.  It is also illegal for any employer to pay a medical bill directly to the provider. A claim form (DWC Form 1) must be filed with the insurance company for any injury requiring more than first aid care.

San Francisco, California

As you may know, California has the largest economy of any state in the United States.  This brings an extraordinary amount of businesses to the state who have an extraordinary need for commercial insurance.  Because the states mandates that employers carry workers comp coverage there is a lot of competition to quote the coverage of those businesses.  In most cases this increased competition would bring the cost of the coverage down, but not in the case of workers compensation insurance.  The main factors driving prices up in the state of California are the state regulations that many would say favor the worker over employers.

According to the Insurance Journal there are steps being taken to curb the increase in workers compensation costs throughout the state of California:

“Claim frequency, claim administration and high medical costs are typically among the drivers of high workers’ comp rates. However, the state in 2012 passed a massive workers’ comp reform law, which according to its supporters seems to be working.

California’s Workers’ Compensation Rating Bureau earlier this month submitted a pure premium rate filing to the California Department of Insurance proposing Jan. 1, 2017 advisory pure premium rates lower than the corresponding industry average.

The WCIRB submitted a rate filing that averaged $2.22 per $100 of payroll, citing in part legislative changes made this year that the bureau believes could help reduce costs. Senate Bill 1160 and Assembly Bill 1244 are both designed to remove medical providers convicted of fraud from the system and prevent them from filing liens.”

Additionally, a lot of business owners in California assume workers compensation is similar regardless of the carrier. Depending upon the industry you are in and the scope of the work you do within that industry, coverages can vary dramatically.  The cost of coverage for the same classification codes can vary significantly between carriers. This is because the appetites for certain industries and types of coverage change from year to year and carrier to carrier. For example, after Hurricane Katrina many insurance carriers were very conservative when offering homeowners or hurricane insurance throughout the coastal areas in the southeast.  This was because of the damaging amount of claims the carriers had to pay out as a result of this damaging storm.

At some independent insurance agencies, they take the work out of finding an insurance company with quality coverage and affordable rates. They do this by being able to quote you coverage from several carriers as opposed to just one or a select few.  In short, they shop the insurance so you don’t have to. Partnering with a good independent insurance agent with whom you trust and speaking candidly with them about your business can go a long way towards saving on workers compensation insurance in California.

Santa Monica, California

Workers Compensation Insurance System in Texas

Why is the Workers’ Compensation Insurance System in Texas so different than other states?

Texas Workers Comp Insurance: Find the best answers to your questions about Small Business Workers' Compensation Insurance in Texas at MyInsuranceQuestion.com

Like all 50 states, the Texas Department of Insurance Division of Workers’ Compensation (DWC) regulates the state’s workers’ compensation system.  It also certifies which employers want to self-insure.  That’s right, Texas allows some employers to not carry workers’ compensation insurance.  Now companies who do not provide workers comp coverage may be liable for medical bills and lost wages when an employee is injured on the job. There are certain standards the companies must meet in order to self-insure.

Government contractors are required to provide workers comp coverage for all employees working on a project.  On top of that, most clients require their contractors to have workers’ compensation insurance.  Employers who choose not to have workers’ compensation insurance (Nonsubscribers) must file an annual notice with the Department of Insurance and the employers who choose not to carry coverage must display notices of no-coverage in common working areas as well as give written statement to each new employee hired.

The ability to self-insure is only one part of the workers comp system that is different in the state of Texas.  It definitely adds an additional wrinkle in to the already complex workers compensation system in the state, but there are other parts of the system that have an impact on the business community in Texas.

Texas Workers Comp Market

The market is very competitive for workers compensation coverage and premium rates are well below the national average the national median rates, at around 87% for 2014.  Part of this good rate on premium is due to the strong economy in the state of texas, but also because of the strength of competition in the work comp market that drives down price.

Rates vary considerably between insurance companies and employers are advised to shop their workers comp coverage periodically.  Small business owners can do this by calling multiple carriers themselves or they can shop with an independent agency who can quote from multiple carriers. The ability to quote from many carriers can help your independent agent ensure they find a carrier with the best price for your classification code.

On top of good rates because of strong competition for workers comp Texas offers several exclusions that are unique to the state of Texas.

Coverage Exclusions in Texas

Injuries that are excluded under the Texas Workers Compensation Act:

  1. Intentional or self-inflicted injuries
  2. Result from horseplay or voluntary drug or alcohol intoxication
  3. Inflicted by someone else for personal reasons unrelated to the job
  4. Result from voluntary participation in off-duty recreational, social, or sports events
  5. Result from “acts of God” (like floods or hurricanes), unless the job has a particularly high risk of such injuries.

Due Diligence Insurance Questions

Due Diligence Insurance Questions for Small Business Owners.

9 Key Insurance Due Diligence Questions every Small Business Owners should be asking their Insurance Agent.

 

Does the insurance cover all the risks my business faces’?

First and foremost, any insurance due diligence review should determine whether the small business bought the right policies in the first place.  This is not always as easy as it seems and this is why it is crucial to consult the guidance of an experienced independent insurance agent.  You should speak long and honestly with them about the actions you do and do not partake in on a daily basis.  They can help you identify risks you did not know your business faces.

Who is insured?

As a business owner, make sure to do your due diligence and install a proper driver safety program for your business. It is important to understand what and who is and is not covered under your specific insurance policies.  This can determine how you operate your business on a daily basis.  For instance, if you have a commercial auto insurance policy and it only covers people specifically reported on the policy than you need to be aware of this if you hire new employees mid term.  Commercial auto policies can be sold on a different basis and each carrier has their own policies for who is and who is not covered under the policy.  Do your due diligence and by consulting with your agent so that you are clear who and what is covered under the policy.

Does the policy have any unusual exclusions?

There are many exclusions that apply to most insurance policies.  Most exclusions have a reason and it is important to know what they are and how they apply to your business. When an incident occurs is not the time to be concerned about exclusions.  Most business owners are busy people. When purchasing commercial insurance they are usually strapped for time.  Most business owners wonder why an insurance agent has to know so much information about your business just to give you a quote for coverage on your business.  There are several reasons for this.  Some of them deal with regulations, but if you have a good agent they are attempting to protect your business properly.  It is human nature to think a salesman is offerring you something simply to make more money for themselves, but insurance agents deal with claims on a daily basis.  They deal with clients on a weekly basis who have had something terrible happen to their business and more often than not they have to explain to business owners why their insurance coverage does not cover the claim.  Taking additional time when purchasing coverage can prevent your business from having to bear the cost of an incident when a claim occurs.

 

Are there flexible payment options?

Pay as You Go Workers Comp Insurance Coverage is one option that can help businesses pay for their coverage monthly based on payroll instead of in one lump sum.  Pay as You Go Workers’ Compensation benefits businesses by freeing up cash for more immediate business needs, by preventing over or under paying and by drastically lowering the likelihood of a mid-term audit by your insurance carrier.  This is especially helpful for cash strapped or seasonal businesses.

Am I classified properly for workers’ compensation?

This is extremely important for your business cash flow. Especially, if you operate in an industry with several different areas of operation.  If you do, you need to ensure the agent classifies your business properly.  They are in the business of analyzing risk.  If you do not tell them all of your risks, then it is in their best interest to assume your business is taking on more risk.  If you do not give your agent enough information they may place your business in a riskier classification code.  This can have an enormous impact on what you pay for general liability and workers compensation insurance.   Taking just a few extra minutes to explain exactly what your business does and does not do, can save you immensely when it comes to premium.

Does my business need Cyber Coverage.

Anyone that hosts a website that interacts with the public at large is a candidate for cyber liability insurance.  If you conduct even a portion of your business online or ask customers to trust you or a third-party vendor with their information, you should seriously consider purchasing cyber insurance.  The risk may be small that you ever incur a breach, but when a breach does occur many business never survive without this coverage.