Workers’ Compensation insurance is mandatory in nearly every state and designed to provide employees with coverage for medical costs and lost wages for workplace-related injuries or illnesses. Work Comp premiums are based on three factors: classification codes, employer payroll, and an employer’s experience modification (ex-mod).
Classification Codes: Make Sure They’re Right!
In most states, the National Council on Compensation Insurance (NCCI) determines the classification codes for each occupation and the type of work. (The Workers Compensation Insurance Rating Bureau (WCIRB) in California, for example, determines its state’s codes). Insurers use these codes to identify the business type and estimated cost of a Workers’ Comp rate. Misclassification of a business can be very costly, which is why it’s so important to review these codes with your insureds. Some types of work cost more to insure and if a business is misclassified, it could be paying more than it should, going back for up to three years.
Employer Payroll: Periodic Audit Reviews Ensure Accuracy
Each Workers’ Comp classification has an assigned rate, which varies from state to state, and is tied directly to an employer’s estimated payroll. For each employee class code, the employer pays on every $100 of payroll. Insurers conduct an audit review after the expiration of the Workers’ Comp policy to verify the accuracy of the information used to determine the premium. This includes rating codes, payroll, overtime, and payments made to subcontractors along with detailed information on the entity structure of the employer.
Conducting periodic audit reviews with your client will help ensure the information is accurate, help the employer remain in compliance, and prevent the possibility of having to pay additional premium. The audit enables you to verify that payroll records are correct and to spot and fix issues that could lead to an external audit. A common error with the payroll process is when an employee is paid at a higher or lower-than-normal rate of pay. Also, review if any payrolls were reassigned to different class codes that could result in a higher rate. Look at whether the insured has used any subcontractors during the policy year that would instigate changes.
Experience Modification: The Lower the Better
Generally speaking, a business’s ex-mod, calculated by the NCCI, is determined by comparing an employer’s loss experience to others in the same industry in the same classification to determine expected future losses. An ex-mod mod of .82 would indicate that a business has few, if any, Workers’ Comp losses. These companies would pay only 82% of the basic premium assigned to their classification code. On the other hand, a 1.50 ex-mod reflects high losses, and the associated company would pay 150%, or almost twice, of their basic premium. Losses impact an employer’s ex-mod for three years.
There are measures an employer can take to lower its ex-mod with your assistance. Ensure they have a strong safety program in place to help mitigate and reduce potential losses. Depending on the industry, safety programs should include emergency action plans, fire prevention, hazard communication protection, the use of personal protective equipment, and other measures. Ongoing employee education and training programs help ensure that a company’s safety programs are being followed properly by every staff member including new hires. Documentation of education and training is also important as it ensures that the staff are properly trained in safety policies and procedures.
Aggressive and proactive claims management is another way of getting a handle on an employer’s ex-mod and reducing costs. Stress with all your insureds the need to report a workplace injury or illness immediately. Employees should receive medical evaluation and treatment right away as well, with the proper paperwork completed. There are nurse triage programs available for employers to use, which, as insurance agents, you can recommend. These programs include a hotline that enables employers to respond to workplace injuries at the most critical point — the day the injury happens. A medical professional, typically a registered nurse, helps workers determine the most effective course of action after an injury, either providing self-care instruction or directing the individual to an appropriate level of care. Implementing immediate action can reduce the likelihood of lost workdays and lessen the number of unnecessary visits to the doctor and the emergency room. Using this approach, the employer and insurer are both aware of the injured employee immediately and can better handle claims, helping to keep costs down and working toward improving the employer’s ex-mod.
A strong Return-to-Work program can also facilitate lowering the cost of Workers’ Compensation insurance for employers. Runaway claim costs can negatively impact a business’s ex-mod. With innovative Return-to-Work efforts, the employer can determine whether or not an employee can still remain on the job with modified duties in order to reduce the time the employee is on leave. Distinguished provides Workers’ Compensation insurance solutions to the industries in which we specialize, including restaurants, hotels, property managers, contractors, retail, and community associations. We also offer HR OnDemand for smaller businesses, and onsite risk management training for larger accounts to help mitigate and reduce risk.