Workers Compensation Insurance
Two Areas of Premium Overcharges
Studies suggest that an estimated 50 percent of workers compensation insurance policies contain overcharges because of mistakes. It can be easy for a business owner to overlook or misapply significant details, policy complexities, and ambiguous classifications that can translate into higher premium payments.
For many companies, workers compensation can hover at 20-25% of payroll. It's expensive for every company. No business can afford to neglect the rigorous examination of what drives their company costs.
You may wonder, how can these “over-charges” occur? After all, workers comp premiums are all basically calculated the same:
Rate x Payroll x Experience Modifications= Premium
But the two factors that can severely impact premiums are experience modifications and premium audits. The good news is that they are controllable.
The Certified Workers Compensation Advisors at Brooks-Waterburn are trained to analyze these factors for you at no cost.
In one situation we know of, a school had a 1.88 experience modifications. Not only that, their workers compensation carrier dropped them. After being advised by a Brooks-Waterburn Certified Workers Compensation Advisor, the school obtained insurance with a projected modification of 1.45 and even received money back on their audit.
A modification impacts your premium like this: If you have a rate x payroll cost of $70,000 and an experience mod of 1.29, your premium will be $90,300. If your mod is reduced to only, 0.79 your premium would be $55,300.
How do experience modifications get calculated?
You, as the insured, provide claim and payroll data.
The insurance company audit department verifies your payroll.
The insurance company claim department adjudicates and reports your claims.
The workers comp bureau promulgates the modification.
The insurance company receives and applies the modification to the policy.
You and your agent receive the modification worksheet.
Control Your Experience Modification
What you want to know is the difference between your actual modification, the one that's being applied to the current policy and your minimum modification and he one set for your employee classification code.
For example, in the example above—let's say the 0.79 is the minimum and 1.29 is the actual mod. You can control the 0.50 difference.
So, when you get the experience mod worksheet:
Verify the accuracy of your payroll by reviewing the premium audit worksheet, your policy and your audit bill
Verify the accuracy of your claims from your valuation date loss runs
Check to see if there have been any recoveries or subrogation's that reduced the claim payout
Audit premium is pure profit for the insurance company. There is minimal overhead and no additional claims to offset the additional premiums audits can generate.
A premium auditor has two main functions, verifying your payroll and providing a description of your business for the insurance company. You provide him with both of those pieces of information.
Unfortunately, mistakes can be made in many areas on the audit. For example: Misclassifying employees resulted in a $126,017 overcharge for one employer discovered by a Brooks-Waterburn Certified Work Comp Advisor. Other areas where overcharges can occur are:
Placing unclassified employees in the highest rated class code.
Including remuneration that can be excluded from payroll (like overtime and vacation pay).
Including payrolls for subcontractors that could be excluded because they have insurance for themselves.
To prevent this from happening, take the following six steps:
Be prepared for the premium audit in the same way your CPA prepares you for an IRS audit.
Build an overcharge-proof audit package before the auditor arrives.
Review the most current list of audit “excluded remuneration”.
Think how you can make a minor job duty or physical plant change to qualify an employee for a lower cost classification.
Complete a premium audit checklist to confirm you’re not overpaying, after the audit.
Obtain copies of the auditor’s worksheet and review them against your records and the official premium audit bill.
Prevent Premium Overcharges
The seasoned Certified Workers Compensation Advisors at Brooks-Waterburn Corp. will professionally analyze your workers compensation policy for free. We only ask that you make us the agent of record.
This will enable you to take control of your workers comp costs through our premium reduction analysis and activities like those mentioned above. Our program also includes suggestions for mitigating claims and back to work practices. These can further reduce your premium because they can lower your experience mods.
Contact Brooks-Waterburn today and get a firm grip on your workers compensation costs.