If you are like most, you have been caught up in the pursuit of saving money on your insurance coverages over the past several years. Worker’s Compensation is no different. In 1995 the insurance industry viewed Minnesota worker’s compensation as a business opportunity. Prices were high and a few laws had changed to help keep the insurance company’s costs lower due to fraudulent claims or excessive treatment of injuries. This perceived business opportunity lead to 5 years of tumbling prices for most.
With this welcomed time, came a subtle cost effect. Worker’s compensation premiums tumbled, but the average claim cost per employer did not. This caused loss ratios (percentage of claims to premium paid) to slowly increase. This in turn, had an affect of increasing worker’s compensation experience modifications. That, if you’re not familiar with the term, is a three year calculation designed to create a comparison of your worker’s compensation losses with that of others in your industry. If your ex- perience modification is 1.0 you are average for your industry. If it is less than 1.0, you are better. The opposite is also true. Think of it this way, after they calculate your premiums for worker’s compensation they then apply the experience modification to that amount. If you are greater than 1.0 you pay more.
Over recent years, many have had a sense that if they went with the lowest premium for worker’s compensation, that they were saving money. Realize however that as the premium went down and claims did not, the experience modification went up, thus possibly negating most or all of the savings. In fact, it may have cost you less to have taken a higher premium alternative initially. Many of the lowest priced insurance companies offer no loss control services to the insured. They may in fact not have particularly good claims payment practices or even reserve higher on occasion than what you might see with alternative companies. This all leads to increased cost to you, and for numerous years, not just for this one particular year in question. Call us to discuss further this challenging insurance coverage.
