One of the most frustrating experiences for a business owner is dealing with a bad series of employee injuries resulting in claims under their workers compensation policy. Depending on the industry you operate your business in, workers comp insurance can be a significant cost to your bottom line.
Your workers compensation policy is based on your payroll, which is classified into different categories by the type of work that is being performed. Generally, the higher hazard type of work will be more expensive from an insurance rate standpoint. For example, clerical workers such as office staff will have a must less expensive workers comp rate than roofing contractors or carpenters.
Most businesses who have workers compensation insurance will be assigned an “experience modification” which is calculated by the NCCI (National Council on Compensation Insurance) on an annual basis. The experience mod is essentially a multiplier for your workers comp premium. If a business has a history of very low or no workers comp claims, their experience mod will go down from the starting point of 1.00. Anything below 1.0 is a “credit mod” and for example, a 0.9 experience mod means you are getting a 10% discount on your premium. A “debit mod” is anything above 1.0, and a 1.1 mod would mean you are paying an additional 10% on your workers comp premium.
The experience mod calculation takes into account frequency and severity of workers compensation insurance claims over the previous 3 complete years of coverage.
Let me use an example to explain:
Let’s say a business has a workers comp insurance policy that is going to renew on 01/01/2020. The experience modification calculation is going to take into account the claims and claim payments that occurred over the policy years of 01/01/2016 – 01/01/2019. The claims that occurred between 01/01/2019 and 01/01/2020 will not be applied to this business’s 01/01/2020 renewal.
With that being said, if your business sustains a large workers compensation loss this year, you can expect to have that loss affect your workers compensation experience modification NOT on your next renewal, but for 3 renewals after that.
This is why it is so important to maintain a safety culture in your work place. Unfortunately workplace injuries do occur, and it is very helpful to have controls in place to reduce the frequency and severity of injuries, as well as reduce the time an employee is off of work.
If you have questions about your workers compensation insurance or would like to know what our independent insurance agency can do to help you control your workers comp costs, please give us a call!