4 questions to help reduce workers’ compensation premiums

Reduce Your Workers’ Compensation Premium
Experience Modification Rate

Accuracy First & Foremost

In another case, a mechanical contractor enrolled for 5 years in a guaranteed cost workers’ compensation program with $300,000 in annual premium saw its experience modifier escalate from .91 to 1.08, which resulted in the contractor being excluded from bidding on projects that had an Experience Modification Rate (EMR) prequalification factor that required the bidders to have an EMR of 1.0 or less.

The company’s insurance carrier had not performed the proper analysis, and inaccuracies in the reported payrolls from a wrap-up carrier, as well as claims which were previously improperly assigned were identified. The payroll errors were corrected, and four claims were removed successfully from the calculations, resulting in a drop of the experience modifier to .89. The change led to a 19-percent premium reduction and allowed the company to bid on projects with a prequalification standard of 1.0 or less. The proper process ultimately resulted in an annual premium savings of $57,000.

A Critical Process

Despite its importance to insurance costs, the experience modifier calculation often lacks transparency. This is partly because many companies do not actively participate in the process, choosing instead to rely on behind-the-curtain calculations conducted by their broker, the National Council on Compensation Insurance (NCCI) or state rating bureaus.

To start, here are a few important questions that every construction company should be able to answer on its own:

  1. Are you sure the data and information used to calculate your experience modifier is accurate, especially if you have participated in wrap-up programs?
  2. Do you understand how your experience modifier stacks up against your industry peers?
  3. Do you know what is currently driving your experience modifier, and do you have a plan to improve it?
  4. Have you evaluated the opportunities that exist to improve your experience modifier, and calculated the potential dollar savings available?

Some insurance brokers simply may ask insurance carriers for workers’ compensation quotes, which allows the carrier to dictate pricing. However, completing a comprehensive evaluation of exposures before submitting information to underwriters will help a construction firm take control of its workers’ compensation claim drivers and total cost of risk.

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