What The Insurance Companies Don't Want Your Business to Know about Workers' Compensation
Do you know how many states in the United States allow a business to go without mandatory workers' compensation? If you said "one", you're right - Texas is it. Even with that said, most businesses in Texas carry workers' comp to be sure they are protecting the financial stability of their business in the best possible manner.
If a business pays over $5000 in insurance premium for workers' compensation, an experience modifier is applied after 3 years of continuous coverage. This modifier is a reflection of several things: insurance premiums paid by a business, the size of the claims paid from injuries, frequency of claims, expected amount of claims based on the classification, and a host of other calculations. All modifiers in Texas are calculated by the National Council on Compensation Insurance, NCCI.
All of thi s has a direct effect on what a business pays in insurance premiums. For instance, a modifier of 1.0 is average, .80 is 20% better than average and a 1.20 is 20% higher than average. This translates into a direct cost to the business and illustrates the importance of keeping that number down. It obviously can be a great asset or an expensive enemy.
When a workers' compensation claim is filed and left open for future payments, insurance companies set a reserve on that claim which is their guess of the ultimate settlement cost. That allows them to budget and know what to expect on that particular claim. In most every case, that reserve is set high – higher than what the final payment is.
Modifiers are calculated using payroll and loss information from the first three of the most recent four year period. Each year, the previous year replaces the oldest year in the calculation. Therefore, the data used moves forward annually one year at a tim e, always excluding the most recent year.
All modifiers are calculated exactly six months after policy inception. For example, if a workers' compensation policy renews 1/1/09, the loss and payroll information used in that calculation is based upon data from the 05-06, 06-07 and 07-08 policy periods. The 1/1/10 modifier is calculated using loss and payroll information from 06-07,07-08 and 08-09.
Let's say a claim occurs on 6/1/09 and the reserve is set higher than it should be. That means the 2011, 2012 and 2013 modifiers are going to reflect inflated numbers resulting in over-charges for all three years, not just one year.
And of course, Insurance carriers are fickle. The higher the modification on a policy, the less they want to write it. Even though they would make more money with a high modifier, they perceive a higher risk.
Many insurance companies have a very hard time writing a workers' compensation policy with a mo difier higher than 1.10. And you know what this means; if they do write it, it's going to cost you more. On the flip side, a business w
If you want to go one step further and address your prior workers' compensation policies, there are companies out there that will audit your prior policies and obtain a refund. This is usually a service that is done on a contingency basis. The firm doing the audit does not get paid until your business receives their refund and in most every case generates a refund from prior premiums paid.
An individual business can play a big role in keeping their workplace safe, but claims monitoring is usually something that has to be outsourced. Find a good monitoring company you trust and allow them to continually monitor your activity and report that activity back in detail, outlining the amount of reserve reductions. This can save a business, on average, 29% on the cost of workers compensation insurance.
What can a business do? Loss Control and Monitoring each claim is the key and something most businesses don't do effectively. Watching claim reserves (especially prior to the modifier rating date), data transferred between the insurance company and NCCI, proper worker classification (to name a few) is what has to happen. No matter what you pay for workers' compensation, if you have an experience modifier it has to be monitored diligently to keep costs down.
评论