As you know, worker’s compensation is that mandatory insurance coverage that almost all companies in the State of Minnesota must have. Unless you employ only family members, you are most likely required to have this insurance by State law. Failure to do so has a fine of up to $1,000 per day. This coverage consists of two parts, coverage A and coverage B. Coverage A is the reimbursement of medical expense and indemnification of lost wages due to a work related injury. Coverage B is Employer’s Liability Coverage that covers third-party lawsuits against your worker’s compensation coverage.
As an employer, you should be cognizant of what the true cost of this insurance can be to your company. It is not only the annual premium you pay for this coverage, but other factors that you can control over time, also play a part. To determine your premium, the insurance company develops rates by job class (different type of work performed at your company). Some jobs are more prone to injury then others, thus a higher rate is developed. That rate is then multiplied by the total wages in that class at your company, than divided by $100. All of the class premiums are added together and the Estimated Annual Premium is developed. Most insurance companies then apply a credit to that premium based on the total size of the premium. The larger the premium you pay, the larger the credit. Then a factor called Experience Modification Calculation is applied. This is something developed for your business specifically based on your claims and payroll history. This history is the last three years of payroll and incurred claims (paid claims and reserves) not including the expiring year. So your experience modification for 2006 was based on incurred losses and payrolls for 2002, 2003 and 2004. This is all put into a very long and complicated formula and a factor is developed. This factor dictates whether you will pay more or pay a less premium. A 1.0 factor represents the average for your industry. So if you are less than 1.0, i.e. .85, you pay less than the average company in your industry in Minnesota. In this example, you actually receive a 15% credit. If your factor was 1.15 than you’ll pay 15% more then the average company in Minnesota in your industry. Do you know what your experience modification is this year? Is it a credit, (less than 1.0) or debit, (greater than 1.0)? If it is greater than 1.0, you need to pay special attention to your program. Injuries over $5,000 are discounted in this formula and if $5,000 or less, they are given full value. This means the State is trying to punish frequency and not severity. The thought is that if an injury happens over and over, it has a greater chance of being prevented, as compared to the unexpected larger injury.
So, what can be done to improve your situation? 1) Contact your insurance company to review the status of all open claims, 2) review your insurance company’s intentions concerning all reserves (expected costs for the injury, yet to be paid), 3) review annual audit information such as payrolls and class codes and make sure they make sense to you, 4) use insurance company loss control and safety programs to help reduce overall losses, 5) understand how injuries are occurring and evaluate with supervisors how they can be prevented, i.e. employee training, enhanced protection, etc…
This coverage can be a very reasonable company expense for some and for others, an enormous burden. Don’t feel alone if at times this insurance is overwhelming. Give us a call and we not only can discuss your challenges, but possibly find an insurance company that can better help.