Experience Modification Overview

The Experience Modification Rate will only apply to your workers’ compensation policy. Typically you will not qualify for a rating until you have been in business for 3 consecutive years with workers’ compensation insurance coverage. Your Experience Mod compares your workers’ compensation claims experience to other employers of similar size operating in the same type of business. If you have fewer claims than other companies of the same size and industry you will receive a lower Experience Mod Ratio. This ratio is used against your annual premium and results as a discount. On the flip side of that is if you have higher claims in a four year time period then it will result in a higher experience mod. The claims history will generally lag at least a year. What this means is your current claims history, whether good or bad, will not have an effect on your renewal experience mod. The modification only calculates policy periods that have been completed. So if you have a good year this year it will not help with your experience rating for two years. On the same note if you had a bad year it will not effect you for two years as far as rating goes. Experienced companies that monitor their workers’ compensation premium understand and utilize their experience mod annually. Understanding your experience modification rating and monitoring is another area in which you can reduce your workers comp costs. Companies who effectively manage their safety programs not only understand how this works, but also have assigned someone to monitor this on a regular basis. It has a direct correlation to how much you pay in work comp premiums.

Where to find your Experience Modification Rate: You will receive an updated Experience Modification Rating Sheet each year prior to your policy renewal date. Your experience mod is also listed on the declarations pages of your workers’ compensation policy. This will reflect last years rate. You will want to contact the National Council on Compensation Insurance (NCCI) directly or your respective State Insurance Bureau. They are able to send you a copy of your new rate, which will be used for this years premium cost. If you don’t know how to find it reach out to your insurance agent and they will be able to point you in the right direction. Most companies whose annual premium are in excess of $5,000 and have been in business for more than 3 years will receive an Experience Modification Rate. The requirements could vary per state and will if you have an individual bureau that handles the rating outside of NCCI. Each year insurance carriers report to the calculating agency your class codes, payrolls and losses for the last five years. The computing agency uses three complete years of data ending one year prior to the effective date of the rating period. For example, a rating in 2015 normally will not use 2014 but would include years 2011-2013 in the formula. Don’t forget about your current years claims. These usually present the greatest opportunity for cost reductions. Remember this years claims will affect your Experience Mod next year.

How claims affect the Experience Mod:

Medical-only claims Claims that require medical treatment only are usually less severe so employers should not be penalized when they occur. Consequently, any medical only claims are reduced by about 70% before they enter the formula. You can take advantage of this by ensuring that injured employees remain at work when possible or return to work within the waiting period. This is where an effective claims management and return to work program can have a dramatic effect. Should you need help in establishing a program, Western National Loss Control Consultants can help.

Lost time claims The first $5,000 of a lost time claim is counted at full value. The dollar amounts after $5,000 are discounted. There is also a large claim cap limit to protect you from a catastrophic loss. Because the first $5,000 of each loss goes into the formula dollar-for-dollar, severity is a factor. A single claim valued at $20,000 has less effect on your Experience Mod then 10 claims valued at $2,000.

 

 

EPLI (Employment Practices Liability Insurance)

What you need to know about Employment Practices Liability Insurance (EPLI)

Employment Practices Liability Insurance

 

The Need

I’ve seen numerous places that the Equal Employment Opportunity Commission (EEOC) receives around 100,000 charges of employment discrimination a year — hardly a drop in the bucket.  Employment discrimination claims are only one type of claim covered by EPLI Insurance. Furthermore, businesses are three times more likely to be sued by an employee or former employee than to experience fire damage (something nearly every business insures against occurring). In addition to heavy defense costs, the average compensatory award in a federal employment discrimination case is around $500,000 and growing. This excludes defense costs and punitive damages. In summary, EPLI related claims are relatively common and are growing in frequency. Such claims can lead to a devastating liability for businesses.

Basic Overview

As similarly described in resources devoted to the ins and outs of insurance coverage, like www.IRMI.com, Employment Practices Liability Insurance is a type of liability insurance covering wrongful acts arising from the employment process. EPLI provides protection against many kinds of employee lawsuits, including claims of:

Wrongful termination
Retaliation
Sexual harassment
Discrimination
Breach of employment contract
Negligent evaluation
Failure to promote
Wrongful discipline
Deprivation of career opportunity
Wrongful infliction of emotional distress
Mismanagement of employee benefit plans

The most frequent types of claims covered under such policies include: wrongful termination, discrimination, sexual harassment, and retaliation. The policies generally cover management personnel, directors and officers, and even employees as insureds. The most common exclusions are for bodily injury, property damage, and intentional/dishonest acts. Employment Practices Liability Insurance policies are written on a claims-made basis. The forms contain “shrinking limits” provisions, meaning that insurer payment of defense costs—which are often a substantial part of a claim—reduce the policy’s limits. This approach contrasts with commercial general liability policies, in which defense is covered in addition to policy limits. Although EPLI is available as a stand-alone coverage, it is also frequently sold as part of a management liability package policy.

 

 

Employment Practices Liability Insurance Coverage can vary substantially among insurance carriers. Some of the most important considerations include whose acts are covered which is beneficial to be as broad as possible. This is especially beneficial to independent contractors, a company’s board of directors (and it’s affiliates) and leased or seasonal employees and volunteers. The definition of which claims are covered can vary. It is beneficial to the insured for the definition to be as broad as possible. Another relevant clause related to EPLI coverage is the “hammer clause”. A strict hammer clause means an insurer must seek an insured’s approval prior to accepting a settlement offer. This requires the insured to be responsible for all additional costs which accrue above the cost of an offered settlement. Typically the insurer recommends the insured accept. A soft hammer is sometimes available which is similar to the hammer clause. Except that the insured and insurer split the costs above the cost of the settlement at some agreed upon percentage (often 50/50). Retention limits and limits of insurance are also relevant. There are often higher deductibles/retention associated with EPLI claims than other types of insurance. Retention levels and limits of insurance substantially affect the cost of EPLI policies.

Claims Examples

The Hartford, one of the leaders in providing Employment Practices Liability Insurance, provides numerous claims examples. One example includes a retaliation claim where an employment offer was rescinded. The claimant alleged the offer was rescinded due to complaints about sexual harassment where as the employer claims the offer was rescinded due to the applicant’s overreaching in the hiring process. The case didn’t settle due to the applicant’s hefty demands. While the insured prevailed at trial with a defense verdict, they were left with $254,000 in defense costs (which are generally covered under EPLI policies). As with many examples, the insured may prevail in the claim (or make a modest settlement), but defense costs often run up into the hundreds of thousands. Without adequate EPLI insurance, that could lead to devastating liability for insureds (or lead to ill-advised settlements to avoid defense costs).

 

 

Data security becoming a bigger issue for hotels

The hotel industry is seeing a rapidly growing trend of data security breaches that are part of the latest trend of industries targeted by cyber criminals. The trend is now reaching the radar of the general public, after Hilton Hotels & Resorts acknowledged hackers stole credit card information from a large number of the franchise locations in November.

According to Barry Kouns, President & Chief Executive Officer at Risk Based Security, there have been 49 reported data breaches from the hospitality industry between 1/1/14 and  11/31/15. Kouns acknowledges that many breaches go unreported by organizations. Of the group of reported breaches, almost 60% exposed client credit card numbers, according to Risk Based Security.

This two-year long trend first received some notice after hotel owner, developer and management company White Lodging acknowledged a cyber hack in the first quarter of 2014. That attack (as has been the case with the Hilton breach and the Mandarin Oriental data breach) targeted point-of-sale devices inside of restaurants, coffee bars and gift shops located within the 14 hotels breached. The White Lodging  cyber attack was where the issue really first came on the radar for the hotel industry.

In fact, that attack prompted John Buchanan to write his article “Sources: Data breach shows industry liability” on Hotel News Now.com. In that report, Buchanan sites an expert who discusses how the industry is being threatened and is seen as a good target for cybercriminals — especially for franchise chains within the industry.

Part of the reason franchises make such an attractive target is because the franchise models typically have a standardized model, even within their computer systems. Because of that standardization, when a security deficiency exists within a specific system, it can be used against the entire franchise.

Former Washington Post reporter Brian Krebs broke both the Hilton and White Lodging breaches on his blog, Krebs on Security. White Lodging confirmed a second data breach in February 2015, attacking the same systems in different hotels.

What can hotels do to protect themselves?

The biggest issue most hotels seem to struggle with centers around their inability to quickly implement security patches in their networks. One of the easiest suggestions Mr. Kouns offers to those in the hospitality industry is for the company to conduct regular network scans and to fix issues.

Another key implementation step is to make sure that anti-virus software and definitions are kept updated. New viruses come out every day and the anti-virus protection software is usually pretty good at staying on top of the new viruses, offering fixes regularly. If a company isn’t updating their anti-virus software, that company is leaving itself exposed for a potentially avoidable hack.

Risk Based Security is one of several companies that offers different solutions to businesses to help them mitigate their risk of a data breach. They offer a subscription service designed to provide clients with the tools, services and resources to stay informed about the latest security threats and have ready access to security expertise while maintaining a continuous improvement posture.

Another key element is providing training to employees regarding cyber security. Many data breaches occur when an employee has either visited a website or clicked on an email that corrupts the computer. Most of the time, the employee is aware that they have made a mistake … but since nothing obvious happens right away the employee is tempted to stay quiet rather than bring up the issue to their IT department and potentially get in trouble.

Some of the most successful companies to avoid data breaches discuss open communication and react in a supportive way when a computer is attacked. That reaction encourages employees to report potential data breaches, which can make the difference between catching an issue quickly, or having your company’s name attached to the next data breach report.

Seven Insurance Coverages Every Restaurant Should Carry

I am opening a restaurant, what Insurance do I really need? This is a question insurance agents get asked a lot. Not just from restaurant owners, but from all small business owners. The answer to this question is like many things in life; It depends. The answer to this question will be different if you are a Painter, a Dry Cleaner, or even an Artisan Contractor.

 

There are many variables that go in to running a restaurant and those variables bring on completely different risks.

First and foremost the restaurant owner needs to determine what class code their business will be in. To find this out you will need the help of an experienced insurance agent. It is very important to be open and honest with the agent about what your restaurant will and will not be doing. For example, if you are a bar that stays open until 2 AM you will be in a different class code than a diner that is open from 6 AM until 2 PM. The risks are different, so the businesses are classified different. Furthermore, if you are not honest with your agent about serving alcohol they may leave out Liquor Liability Coverage. If an incident occurs without coverage it may be a loss so large it forces you to close permanently.

So once a business is classified correctly there are seven main coverages every restaurant should carry. Some restaurants will need all of these coverages and more. Some restaurants will need only a few coverages. Again, that is where the help of an experienced commercial insurance agent is important. This list is a great starting point for protecting any restaurant.

 

  • General Liability
  • Liquor Liability
  • Commercial Property
  • Hired and Non-owned Auto
  • Commercial Crime
  • Workers’ Compensation
  • Umbrella Policy

 

General Liability

General Liability (GL) is often referred to as the first line of defense in any good business insurance policy. A GL policy protects a business against liability claims for bodily injury and property damage as a result of normal business operations. It also covers some types of advertising liability. This can be as simple as someone slipping and falling on the way to the bathroom to another business claiming you stole their advertising slogan. There are exclusions in every policy and not every carrier has the same exclusions. Reading your policy and consulting with your agent are important.

 

Liquor Liability

Liquor Liability is designed for businesses that sell or serve alcohol. If you do not plan on selling alcohol this is not necessary for your business. In many states, business are required by law to carry this coverage. Liquor liability covers liquor related instances including bodily injury, mental anguish, psychological damage, assault, intoxicated employees and property damage.

 

Commercial Property

Regardless of whether you own or rent the facility your restaurant is located, property insurance is an essential part of protecting your restaurant from disaster. Commercial Property Insurance covers losses and damages to a companies property including buildings and permanent fixtures, inventory, furniture, equipment, personal property, signage, fences, and even landscaping.

 

Hired and Non-Owned Auto

One risk that many restaurant owners forget about is when their employees are using their personal cars for business purposes. This is where Hired and Non-owned Auto Coverage is necessary.  Many restaurant owners think if they do not offer delivery services they do not need Commercial Auto Coverage. That is not always the case. Hired and Non-owned Auto Coverage kicks in when your employees use their own vehicle or a rented vehicle not owned by the the company. The employee could be using their vehicle for something as simple as going to get change at the bank. Regardless of how small the activity may seem, when the employee is using any vehicle to do business activity you are liable.

 

Commercial Crime

In today’s day and age the risk for credit and debit card fraud is very high at a Restaurant. You and your customers are putting a lot of faith in the people you hire to not steal their personal credit card numbers. For this reason it is necessary to carry Commercial Crime Insurance. This coverage provides coverage for criminal acts committed by you or your employees. These can include employee dishonesty, forgery, computer fraud , funds transfer fraud, kidnap, ransom, extortion and money laundering. Depending upon the policy it will pay to defend you at trial and some fines or judgments awarded by a court of law.

 

Workers’ Compensation

 Workers’ Compensation Insurance offers coverage similar to General Liability. Workers Comp is designed for your employees instead of third parties. Work Comp Coverage is frequently referred to as the “exclusive remedy”. This means employees give up some rights to sue for injuries occurring on the job in exchange for guaranteed benefits like lost wages and coverage of medical costs. Employers gain the piece of mind that they will not be sued for most accidents occurring on the job unless the business is intentionally negligent.

 

Umbrella Policy

An Umbrella Insurance Policy is a great way to provide an added layer of protection to your business. The coverage is a policy that goes over the top of other insurance policies for a rainy day. Basically, the Umbrella Policy will provided higher limits of coverage when a large claim occurs. Think about the size of a potential claim if your restaurant caught on fire while people were inside. This could easily lead to you reaching the limits for General Liability and Commercial Property Coverage. This type of situation could easily exceed a typical $1,000,000 occurrence limit for those underlying policies. This is when the Umbrella policy would kick to provide additional coverage over and beyond those limits.

 

In most cases these policies can be bundled together under a Business Owner’s Policy (BOP). Most insurance carriers like to offer policies in a bundle because it brings them more business and allows them to get better prices for the business owner. It also ensures business owner’s are completely covered with no gaps in their coverage. So when you go out looking for your restaurant’s insurance policy these are seven insurance policies to consider when protecting your restaurant.

Workers’ Compensation provider of last resort. 3 ways states provide this service.

Workers’ Compensation Insurance is required coverage for businesses in nearly every state. It covers workers’ for some lost wages and medical costs due to injuries occurring on the job. It provides employers with the piece of mind that they will not be sued for injuries that occur as part of normal business operations. How to administer a system of workers’ compensation is left up to the individual states. Each state has their own way of going about administering this system. One major part of this system is how a state providers employers with a provider of last resort. This is also referred to as the state fund or the assigned risk provider.

Some employers who have had several incidents may be labeled as too much of a risk to insure. other employers are in a very risky industry like off-shore oil-drilling or coal mining. In these situations, insurance companies may deem the business too much of a risk to offer an insurance policy. When this is the case the state steps in and providers a provider of last resort. There are three main ways states go about administering a provider of last resort.

  • A State Fund
  • A Public-Private Partnership
  • Partner with NCCI

A State fund

One way states go about administering a provider of last resort is to have a government provided state fund. Utah and California are examples of two states who have state funded providers. These two states show how a strong or weak assigned risk provider can affect the rates employers pay for coverage. For example, The Workers’ Compensation Fund of Utah (WCF) has a 57 percent market share for work comp policies in the state. The next largest provider owns only a 3 percent share of the market (1). In comparison, The California State Compensation Insurance Fund (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 effect 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.

A Public Private partnership.

Some states create a quasi-governmental partnership with a private insurance company to be the provider of last resort. This relationship allows the state and the insurance company partner to spread the risk between the two and still provide coverage to the employers of the state.

Colorado is an example of a strong public private partnership. The state fund provider for Colorado is the company Pinnacol. Pinnacol serves 56,000 businesses covering more than 900,000 workers in Colorado. Colorado employer’s enjoy rates on workers’ compensation insurance that are 19 percent less than the national average(3).

NCCI

Some states partner with an outside organization to administer the state fund. The National Council on Compensation Insurance (NCCI) is the organization most frequently used. NCCI is the nation’s most experienced provider of workers compensation information, tools, and services. In most cases they can administer the assigned risk more efficiently and cheaper than a state government can themselves. States who outsource this job to NCCI typically enjoy lower rates across the board.

Do I really need Inland Marine Insurance?

Inland marine insurance is a specialized form or property insurance. It is often referred to as equipment coverage or Floaters by many business owners and insurance agents. The primary distinction between inland marine and other property insurance is the fact that inland marine is specifically for property that is likely to be moved or in transit, or it is a highly specialized type of property that required a unique valuation.

inland marine insurance

Originally, inland marine insurance policies were referred to as Floaters because they were primarily policies written to cover cargo in transit on large marine vessels. Inland marine coverage has expanded in the U.S. to include most types of property that has an element of transportation. Today, inland marine insurance covers a wide range of property and equipment.  When the property being insured does not fit within a traditional property insurance policy and is not always stationary in a reasonably fixed location it will automatically be eligible for an inland marine quote. While inland marine insurance is slightly more expensive than other property coverage, it also provides additional protection from theft or damage to the property while it is away from the primary business location.

The most common types of inland marine coverage includes construction equipment, transportation cargo, mobile medical equipment, cameras and movie equipment, musical instruments, fine arts and solar panels. Traditional property insurance is not designed to cover claims associated with these types of property. It is not uncommon for a business to purchase both property coverage and inland marine coverage together as part of a Business Owners Package (BOP).

Even though most homeowners policies provide some coverage for personal property such as fine arts, jewelry, guns, antiques, and musical instruments, these policies typically have lower insurance limits and provide less coverage in terms of causes of loss. In some instances, individuals or home based businesses find some of their property can’t be covered properly by their homeowners insurance. This is another situation where an inland marine policy could provide additional coverage.

Personal inland marine coverage is also offered in rare circumstances. It is very similar to a commercial inland marine policy, but the main difference is the named insured (i.e. the person or business buying the policy). Personal inland marine polices are commonly written for individuals who want broader insurance coverage for select property, or want higher limits of coverage than a homeowners policy will provide.

Commercial inland marine insurance represents approximately 2% of all insurance premium written in the United States. This is not a large amount, but when your business needs it it is a great thing to have. Claims on this type of coverage are much more common than many business owners assume. Most business owners and insurance managers could benefit from having a long discussion about what business equipment commonly leaves the primary insured location. In most cases it is only insured if it is located at primary insured location. Once it leaves the premises it must be insured under an inland marine policy. In many cases business owners have turned in property claims on equipment they store or use offsite, only to find their business property coverage does not cover the claim.  This is frequently when business owners understand the value of their inland marine coverage. Unfortunately many times it is too late.

What is Professional Liability Insurance?

Professional Liability Insurance is also referred to as errors and omissions (E&O) insurance. It is commonly referred to as this in the insurance, law and accounting fields. In the medical profession it is called medical malpractice.  Professional Liability Insurance is a type of business liability coverage designed to protect traditional professionals who give professional advice and provide technical services for a fee. This coverage is usually in addition to a preexisting General Liability Policy. At the heart of what Professional Liability Insurance does is: ensure consumers have a legal recourse for mistakes made by professionals, and  enable professionals to defend and pay damages if they are found responsible.

Accountant’s, Doctor’s and Lawyer’s are not the only professions who have a need for Professional Liability Insurance. There are many types of professionals who are expected to have extensive technical knowledge or training in their particular area of expertise. Some of these others professionals include Insurance Agents, Graphic Designers, Architects, Engineers, Real Estate Agents and Financial Advisers. All of these professionals are expected to perform the services for which they were hired according to the high standards of conduct in their profession. If those professionals fail to live up to the standards of their profession, they can be held responsible in a court of law. This is where Professional Liability Insurance can protect these individuals from litigation that could otherwise ruin their career.

Professional Liability Insurance can also be a benefit when a professional has done nothing wrong. In many instances professionals have claims brought against them or their business for occurrences they are not liable for. Court costs and reputation management costs can be covered in most Professional Liability Policies.

There are certain types of exclusions within Professional Liability Policies. Errors and Omissions Policies typically have specific language and may have strict definitions of what is covered within their contractual language. This makes it imperative for business owners to be honest with their agent about what they are and are not doing within the day-to-day operations of their business.

Professional Liability does not cover bodily injury, property damage, personal injury, or advertising injury claims. Those such claims would be covered under a commercial general liability policy. Most agents should easily be able to design a specific Business Owner’s Policy including all of these coverage’s. This frequently saves the business a lot of cost and ensures there are no gaps in coverage.

So in closing, Professional Liability Insurance is a type of liability coverage designed to protect traditional professionals who give professional advice and provide technical services for a fee. It is designed to ensure consumers have a legal recourse for mistakes made by professionals, and to enable professionals to defend and pay damages if they are found responsible.

What is General Liability Insurance?

General Liability (GL) Insurance is the most important insurance coverage a business can obtain. It is frequently referred to as the first line of defense. GL Insurance protects policy holders from third party risks associated with lawsuits and other claims. It can cover things as simple someone slipping and falling when they come in to your building, to a fire in the basement of your property.  General Liability is required by law in most states. Businesses are often required to purchase coverage with most contracts for leases, loans, and work performed for others. More importantly, businesses need general liability in order to protect their business and personal assets.

Get the best answers to your questions about general liability insurance coverage at myinsurancequestion.com

In most cases a General Liability Insurance Policy is the first line of insurance purchased by a business. It is usually purchased in addition to other policies like Workers’ Compensation, Commercial Auto or Professional Liability Insurance. Most agents can easily package all of these policies in to one Business Owner’s Package (BOP). Purchasing insurance from one carrier in a BOP, is a good way to maximize savings. Dealing with one carriers also makes interactions much easier for business owner’s when they have to get certificates or when there is a need for a claim.

One part of a General Liability Policy that is confusing for many policy holders is, who is a Third Party? Third parties can include anyone from customer’s, to contractor’s, to anyone who may be injured as a result of an action taken by you, your employees or caused by the actions of your business in some manner. It does not protect your employees. That type of injury would be covered under a Workers’ Compensation Policy. In most states Workers’ Compensation is required by law.

Typically a General Liability Insurance Policy provides only specific types of coverage named within that policy. GL coverage is almost always related to third parties who suffer a loss caused by the insured as opposed to employees and the insured’s themselves. Generally speaking, covered losses must be unintentional. Intentional damage  is not covered by most liability insurance policies.

Some examples of incidents covered under a General Liability Insurance Policy are:

  • Personal Injury
  • Advertising Injury (The unintentional use of a competitors advertising material)
  • Medical expenses
  • Legal defense costs
  • Property Damage (third party property caused by company negligence)
  • Electronic Data Liability (Businesses that service computers and could cause damage to a server)

One common misconception about General Liability Coverage is that it is all encompassing.  There are many instances where an occurrence is not covered by a General Liability Policy and there are other types of insurance offered to fill those gaps. That is where the necessity for a BOP can be crucial. When all coverages are purchased from one carrier there is less risk of there being a gap in coverage. It also speeds up the time for a claim because there are not two insurance companies interacting to determine who is liable for the claim. Most Insurance agents can help a business owner determine any and all coverage your business needs. All businesses should start with a General Liability Policy.

Workers’ Compensation, Competitive State Funds

Each state has their own method for how they go about setting up a provider of last resort for workers’ compensation insurance coverage. This provider of last resort is also referred to as the assigned risk provider, the state fund or sometimes as the pool. This provider is designated as the provider of last resort for businesses who cannot find coverage through the open market. It is typically more expensive from this provider for a number of reasons.

Although, I have recently found there are a few state funds that are very competitive.  Some are so competitive my select carriers cannot compete with the rates being offered. I have a hand full of accounts that in the last few months I have tried to move out of the various state funds, but cannot find competitive rates.

Two of the states that I have had a hard time competing in are Texas and Kentucky. Both of these “competitive state funds” are really good at what they do. Offering Workers Compensation with both great rates and great safety resources for their insured’s. The clients I have tried to move out of these state funds are companies that do not fit in the underwriting box of our main street carriers. They still have opportunity to get coverage from a carrier that will offer pay as you go work comp and get out of the state fund. However the day has come when my current clients have said I am perfectly fine staying with the state fund. These carriers are offering dividends in some situations and are also offering an in network option. The in network option offers a network of Doctors that work with the carrier and streamline the process for workers’ compensation claims. This saves money for the employers and lowers the total pay out for a claim.

The state of Colorado also offers a “competitive state fund”. Three years ago I would have said my markets could still compete with these states in the voluntary market. Today I am not so sure. Don’t get me wrong it is still worth going through the process of getting quotes from all options. Depending on what classes of business the funds are doing really well in, you may be able to find better rates in the state fund. Much like the select carriers that are out there, the state fund will write most classes of business, but that does not mean they are going to offer their best pricing. For instance, take a Class Code 9014. This is for a commercial/industrial janitorial business in the state of Texas and this business has a substantial amount of payroll. The industrial cleaning portion of this company is going to kick them out of most of my select carrier underwriting guidelines. That leaves me with my high-risk carriers and my state fund (Texas Mutual). The high-risk carriers are usually going to have higher rates because they are offering to cover a business that not many carriers are willing to take the chance on. The high-risk carriers can only offer a 25% max credit. If the rates are not low enough to begin with we still are not going to be able to save the client money. On top of that we have the in network option and the dividend program. Many customers are benefiting by staying with the state fund of their home state.

The flip side to this is if we take the same Texas Janitorial Company and they decide to expand their operations outside the state of Texas. This would create a completely different scenario. State funds do have the ability to offer “other states” coverage’s on a separate writing paper or policy, but that is usually very limited to states and how much payroll will be allowed. In this case a high-risk carrier would be beneficial. The high-risk carrier will often times have the ability to add additional states to the policy as the company grows. They may also be able to offer better rates than the alternative, which would be having a policy with a handful of separate state fund policies.

Whether I am trying to move an existing client to a more competitive carrier or I have the opportunity to help a client that has come to me in need of a new policy. I have the tools and the ability to take care of the companies insurance needs. That can be through the state fund or through one of our many carriers.

What is the process for a Workers’ Compensation Payroll Audit?

The premium for most Workers Compensation Insurance Policies are based on a payroll “estimate” for the upcoming 12 month period from the effective date of the policy.  This is made as accurate as possible during the workers compensation payroll audit.  In addition, each business type is assigned one or more workers’ compensation classification codes. Each of the workers comp class codes are assigned a percentage rate factor. Payroll is than multiplied by the percentage rate factor for each class code. This is what determines the amount of the premium. After the policy period is complete, EVERY standard workers compensation carrier will perform a payroll audit for the previous 12 months of coverage.

During this payroll audit process the auditor can require either a physical or mail audit. Mail audits are fairly simple. They require completing a worksheet and submitting the requested payroll verification documents. Physical audits require the auditor to meet with the business owner, collect and verify payroll documentation and inspect the business to determine proper classification. Payroll documents usually include year-end tax reports, payroll ledgers and 1099 payroll information.

The purpose of an audit is to determine the “actual” wages paid to employees and to make sure the employees are classified correctly. After the payroll audit process is complete, the auditor reserves the right to change the workers compensation class code however they interpret the business based on their inspection. The auditor will report to the insurance carrier, the “actual” wages paid to employees and uninsured 1099’s per class code. The insurance carrier will than adjust the payroll figures and class codes. IF need be the auditor will than send the business owner a refund or an invoice for the additional amount due. If the business owner fails to complete the audit as requested it will cause difficulty purchasing a workers compensation policy in the future.

After the business owner receives the audit results, the business owner has the right to dispute the results if they feel something is incorrect. Business owners can go directly to the audit department to capture the auditor’s report/notes or business owners can involve their agent to assist with this process. If a classification code is changed and the business owner doesn’t agree the business owner must request an inspection by the appropriate state workers compensation bureau. Typically this request costs the business owner a few hundred dollars. The bureau inspection and classification code determination is final.