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How to help clients lower their workers’ comp costs

Insurance Forums Staff

There are a host of changes in workers compensation coming that your business owner clients should be aware of, as well as new ways to control workers’ compensation costs affecting their business. Experts deviate on which of these changes will have the most impact, but most agree on one thing: Workers’ compensation insurance is going to be insane in 2014.

In many states rates will increase as the amount of money the insurance company charges for workers’ compensation continues to rise. However, this is not universal. In some states there will actually be slight decreases. But your clients shouldn’t get too excited. Even in these outlier states the insurance companies are being much more selective about what companies they choose to insure. What these rate increases mean is that business owners will be writing a bigger check for workers comp in 2014, even if their business hasn’t grown substantially.

In 36 states the National Council on Compensation Insurance (NCCI) is the rating bureau that determines the rules for workers’ compensation and calculates the experience mods. Beginning in 2013, a substantial change to the experience mod calculation occurred. In 1991, the split point between primary and excess losses was set at $5,000. In 2013 it ballooned to $10,000. In 2014 it’s going up to $13,500. And just to disprove the theory that what goes up must come down, in 2015 it’s predicted to go above $15,000. The reason this amount keeps rising is simple; the cost of employee injuries has dramatically increased. Back in 1991, the average employee injury cost the insurance company around $3,000. In 2011 that amount was almost $9,000. Because of this dramatic change, the experience mod needed adjusting.

The experience mod calculation splits injuries into two areas, primary loss and excess loss. The primary loss, which has been at $5,000, is counted 100% in the mod calculation. Everything above that is excess loss and it’s discounted depending on the size of your business. This means that the first dollars in the claim are the most important. So, if you have suffered 10 injuries at $5,000 your experience mod will be impacted more than if you recorded one $50,000 injury.

Experience mod now much more responsive

As the cost of employee injuries has increased, the impact that those injuries have had on the experience mod has decreased. It’s important to remember that the purpose of the experience mod is to adjust what a business owner pays for workers’ compensation based on whether or not it is better or worse than the average business similar to it. NCCI has changed the split point in accordance with how the cost of employee injuries has changed, thus making the experience mod much more responsive. This will cause a change in a business owner’s experience mod, and not necessarily a good one. It’s impossible to know without looking at a specific experience mod whether or not the change will positively or negatively impact a specific business owner’s mod. But what we can say is that businesses that are substantially worse than average will see a higher experience mod, while businesses that are better than average are likely to see a decrease in their experience mod.

The key thing to know about this change is that it will in all cases reduce the business owner’s minimum mod to the lowest experience mod that he or she can have, and because of this a business now has more control than ever in reducing its experience mod and controlling what they pay for workers’ compensation.



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