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. These modifiers in Texas are calculated by the National Council on Compensation Insurance, NCCI.All of this has a direct effect on what a business pays for workers' compensation. 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 is directly related to what you pay for workers' compensation, and in some cases insurance companies add discounts if you are under 1.0. What this illustrates is the importance of keeping this number down.
 |
| What the Insurance Companies Don't Want Your Business to Know About Workers Compensation |
When a 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. 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 exactly 6 months from the original inception date of the workers compensation policy. So, for a WC policy from 1/1/09 - 1/1/10, the 2011 modifier is calculated on 7/1/09 (exactly 6 months into the policy term). If a claim happens on 6/1/09 and a reserve is set higher than it should be, the new modifier is going to reflect the inflated numbers resulting from that particular claim. That means next years' modifier will be higher than it should be and the business pays an inflated cost throughout all of the next 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 make more money with a high mod, many carriers have a very hard time writing a business with a modifier higher than 1.10. And you know what this means; higher premiums. On the flip side, a business with a low mod is very desirable and can get additional discounts to further lower their premium.
What can a business do? Loss Control and Monitoring each claim individually is the key. Watching claim reserves, 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 needs to be monitored diligently.
Or, of course' you can trust your insurance carrier to reduce reserves at the appropriate time - which is not going to happen. Why would an insurance company care ? If the modifier is higher, they make more money for the exact same exposure.
An individual business can play a big role in keeping their workplace safe, but the monitoring is usually something that has to be outsourced. Find a good commercial Insurance Agency you trust and allow them to continually monitor your policy and report the activity back in detail, outlining the amount of reserve reductions. This can save a business thousands of dollars, but the average is 27%.
The cost of this service can range anywhere from 2% (of the workers' compensation premium) down to free depending on the size of your insurance premiums and if the Agency also handles your other insurance policies. Many times Agencies provide this monitoring as a valued added service if they handle all your other policies.
Modifiers are calculated exactly 6 months from the original inception date of the workers compensation policy. So, for a WC policy from 1/1/09 - 1/1/10, the 2011 modifier is calculated on 7/1/09 (exactly 6 months into the policy term). If a claim happens on 6/1/09 and a reserve is set higher than it should be, the new modifier is going to reflect the inflated numbers resulting from that particular claim. That means next years' modifier will be higher than it should be and the business pays an inflated cost throughout all of the next 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 make more money with a high mod, many carriers have a very hard time writing a business with a modifier higher than 1.10. And you know what this means; higher premiums. On the flip side, a business with a low mod is very desirable and can get additional discounts to further lower their premium.
What can a business do? Loss Control and Monitoring each claim individually is the key. Watching claim reserves, 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 needs to be monitored diligently.
Or, of course' you can trust your insurance carrier to reduce reserves at the appropriate time - which is not going to happen. Why would an insurance company care ? If the modifier is higher, they make more money for the exact same exposure.
An individual business can play a big role in keeping their workplace safe, but the monitoring is usually something that has to be outsourced. Find a good commercial Insurance Agency you trust and allow them to continually monitor your policy and report the activity back in detail, outlining the amount of reserve reductions. This can save a business thousands of dollars, but the average is 27%.
The cost of this service can range anywhere from 2% (of the workers' compensation premium) down to free depending on the size of your insurance premiums and if the Agency also handles your other insurance policies. Many times Agencies provide this monitoring as a valued added service if they handle all your other policies.
 |
| What the Insurance Companies Don't Want Your Business to Know About Workers Compensation |
Over a period of just a few years you can easily be paying 27% more than you should for workers compensation if it's not closely monitored. Keeping this modifier down is an important part of controlling the overall costs of businesses insurance. Control your modifier and you control your bottom line.
No comments:
Post a Comment