In the first part of this series, we provided an overview of the basic factors that form the basis of the Workers Compensation premium. Today, we’ll go into more detail about some of other, more complicated factors that can affect your premium for either the good or the bad.
The Effects of Workers’ Compensation Claims
Businessowners, Employees and Insurance Companies all share a common goal – no one wants there to be a Workplace Injury. A serious injury to your employee hurts everyone involved. An injured employee’s health as well as how this injury might affect their family and their future is of concern.
An injury to an employee will affect the business in a number of ways, such as a loss of productivity, additional costs of hiring a replacement employee on a temporary or permanent basis, the lost experience that employee might have, and finally, with potentially increased insurance premiums.
Finally, the insurance company pays out expenses, costs for medical services and partial replacement of the employee’s lost wages.
The injured employee’s health is obviously the primary concern. My point is simply that no one wants there to be a workplace injury and regardless of the reason, preventing workplace injuries should be a priority for everyone involved.
How the Cost of Workers’ Compensation Insurance Is Calculated
For employers, the factors that most significantly affect your Workers Compensation premiums are the classifications your employees qualify for combined with the gross wages paid. After this, the Experience Modification Rating (EMR) Factor often has the most significant effect.
Experience Modification Rating Factor
The Experience Modification Rating Factor (EMR) is a rating factor which typically starts at 0.70 and can climb to above 2.00. This rating factor is applied to your premium that’s generated by your class rate and payroll. Here’s an example:
Payroll x Rate = Premium
$1,000,000 10.00 $100,000
If the EMR is 0.70, then your premium becomes:
$1,000,000 x 10.00 = $100,000 x 0.70 = $70,000
Alternatively, If the EMR is 1.50, then your premium becomes:
$1,000,000 x 10.00 = $100,000 x 1.50 = $150,000
This all assumes that the other rating factors remain the same; however, if you have a high EMR, it would be the result of significant claims activity and you might no longer qualify for preferred Workers Comp rates, increasing your premium further. But as you can see, just the EMR alone can have a major impact on your Workers Comp premiums.
How is the EMR determined?
The EMR is determined by your state’s Workers Comp Rating Bureau. In Pennsylvania, that’s the Pennsylvania Compensation Rating Bureau (PCRB; pcrb.com) and in New Jersey, that’s the Compensation Rating & Inspection Bureau (NJCRIB; njcrib.com).
Without getting into too much detail, the rating bureaus review factors such as claims (including the type of claim and how much is paid), your payroll, your premiums and your expected future losses to determine what your experience mod rate will be.
The time period they look at is also important. There is a three-year period reviewed prior to each your new policy terms, but the expiring policy term doesn’t count. Fox example, if your policy is going to renew on September 1st, 2019, then the rating bureau will look at the period of 9/1/2015 – 9/1/2018. They won’t consider claims from 9/1/2018 – 9/1/2019 because they won’t have complete information of what may have happened during this policy period at the time they’re determining your new EMR.
How Can I Manage My EMR?
There are a couple of ways to keep your EMR as low as possible. First is to develop a good safety program specific to your business. In general, a good safety program begins from the top down – support and active participation from ownership, then management, leads to adoption at all levels. Small businesses can gain access to safety programs through their insurance agent, insurance company, industry associations and various other sources. If you’re looking for a good place to start, please don’t hesitate to get in contact with me.
A second way to make sure you’re getting the best rate you can is by working towards limiting the amount of expenses paid in claims that you do incur. An example of this is having a Return to Work program in place to help get injured employees back to work. Return to Work Programs often entail light duty work, either in your office or as a volunteer for a charitable organization, until the injured employee can resume their normal responsibilities, and typically reduce the length of time an injured employee needs to return.
For most employers, the Experience Modification Rate will be one of the major factors in determining your premium, but there is another significant credit available for businesses that provide services in or related to construction.
Construction Class Premium Adjustment Program
Many states offer a program to help reduce Workers Comp premiums for businesses that pay a high hourly wage to employees and that qualify for a Workers Comp class code in the construction industry. Different states have different rules that govern these programs, so we won’t get into too detailed specifics here; however, we can provide a general guideline on how these programs work.
These programs provide you with a potentially significant premium credit – up to 30% in some cases – depending on the average hourly wage you pay your employees. Again, this varies by state, but if you pay your employees an average of more than about $35 per hour, you may qualify.
An Important Difference
The Construction Class Premium Adjustment Programs (CCPAP) differs in a few ways from the Experience Modification Rate Program. First, the EMR is a program that your state rating authorities automatically review – there is no opting in or out of this program. The CCPAP is a program that you would have to apply for to qualify for by submitting an annual application. Second, you cannot be penalized in the CCPAP – you’re either authorized a credit or you’re not, but applying for it won’t increase your premium.
Applying for the Program
If you have a class code on your policy that would qualify for this program, you should receive some paperwork with your Workers Comp policy that provides information such as a copy of the application, or details about your eligibility to apply. Even if you don’t get them, or can’t find them, these applications can be easily found online at the state rating authority websites, or by contacting your insurance agent.
The application requires a review of payroll reports and some math, but are typically straight forward to complete. If you’re authorized a credit, your insurance carrier may ask for some additional paperwork to verify the accuracy, but many will simply apply the credit to your policy at the state rating authority’s direction. There are time limitations on when you can apply for this credit and you can count on about a 30 day wait time from the time of application to get a response.
Having a workplace injury that results in a Workers Comp claim can impact your premium while having no claims helps to keep your premium down – this is a concept that’s pretty easy to understand. How this actually works is a little more complicated, but I hope that we’ve shown some clarification here on how it works and some of the additional options you may have to help influence or reduce your premiums.
As always, if you have any questions about this, would like to know your Experience Modification Rate, find out if you might qualify for a Construction Class Premium Adjustment Program, or if you’re interested in developing a Safety Program for your business, please don’t hesitate to get in contact with me directly at 215-643-3490 x23, or at email@example.com.
Looking for More?
This post is part of a series aimed at providing more information about Workers Compensation. Here is what we have so far in this series: