Workers Compensation Experience Modification
Experience modifications are developed by relatively complex math calculations. A basic understanding of how it works may encourage you to lower your premiums. Let us look at how it works.
A company qualifies for experience rating if premiums for the previous two years was $5,000.00 or more, or the last year's premium was more than $8,000.00.
Information on premiums and losses for a three year period is used in the calculation. This period begins one year prior to the current anniversary rating date and goes back to end four years prior. For example, your 1995 rating will be based on your claims experience for the years 1993, 1992, and 1991.
The National Council for Compensation (NCCI) will make the calculations based on the data supplied by your insurer. The resulting factor is used to multiply your "manual premium". This produces a standard premium.
What does all of this mean?
You will be charged higher premiums if you have poor loss control. Poor loss control and poor safety standards WILL lead to losses. It is an error to think that because you have not had losses in a long time your operation is safe. An experience modifier could make a $10,000.00 premium become $15,000.00 or $7,000.00 (examples). It could vary either way, depending on whether losses were better than average or worse than average.
Additional sales are required to pay for losses. The following table will help you figure out just how much additional sales you would need to pay for increases in premium (based on your % profit margin).
This table only shows the effect of direct cost on your profit. Indirect costs are estimated to be 3 to 4 times the direct cost. Indirect cost could include the cost of another employee's production time while they are diverted to process a claim. It could include the cost of help in doing the job of an injured worker, or the cost of lowered morale. An inadequate workforce can be costly in terms of customer dissatisfaction.
How can you lower your experience rating and save money?
Get your agent at AIS to set up a formal safety program. Your association provides excellent benefits, but they are no good to you until you use them.
Follow the program to the letter; prevent injuries.
Bring injured employees back for modified work (as prescribed by their doctors). You need not pay at the regular rate or give full time work. Every dollar incurred for benefits goes toward calculating your modifier.
Make every employee responsible for safety. Safety should be part of a supervisor's performance appraisal and the appraisal of all workers.