How Do Experience Mods Impact Premiums?
Workers' Compensation: An Experience Rated Policy
In the fast food service industry, actively embracing safety measures can save you money when it comes to determining your workers’ compensation insurance rates. Simply put, your workers’ compensation policy is an experience rated policy. This means that if you have a good experience (i.e. fewer losses), you will pay less. However, the same is true when your claims increase – you pay more. Understanding how the experience modification formula impacts your premium is just as important as taking proactive measures to implement a risk management safety program and looking for other ways to reduce claims.
Experience Modification Formula
The experience modification/merit modification is calculated by the National Council on Compensation Insurance (NCCI) to adjust your business’ workers’ compensation insurance premium. There are many factors that make up an experience modification, but the primary element is your business’ loss experience. Once your business has met certain requirements, including premium size and years of coverage, it will be assigned an experience modification. This is calculated annually by the NCCI based on your business' claim and payroll history. The experience modification formula is a two part formula:
1. Designed to address small losses, the first portion of the formula is the most heavily weighted. The small loss limit in the formula is adjusted upward each year to reflect inflation.
2. Designed to address large losses, the second portion of the formula relates to disability payments. Getting an injured employee back to work and off of disability is significant, as each dollar spent up to business policy limits will count against your modification factor.
How Can I Control My Workers' Compensation Premium?
Implement a Strong Safety Program
Companies of all sizes need to have an effective, workable safety program with the goal of zero claims. Taking the time to implement a strong culture of safety in the workplace is essential.
If your business has experienced deteriorating experience modification rates, take a close look at how your claims are being handled. They require diligent effort, proper management and employer involvement.
Select the Best Insurance Program for Your Business
Select coverage that addresses your unique needs. Marsh offers workers’ compensation coverage and understands the restaurant franchise business – all backed with experienced professionals who know your restaurant the way no local agent does.
Monitor Changes in Your Rating Payroll
Increases in rating payroll will result in a direct increase in the cost of your workers’ compensation policy. Rating payroll is used as the exposure base in calculating your premium.
Premium Audit Accuracy
A workers’ compensation premium audit is a review of the business’ records and operations to ensure that the coverage information is accurate. The goal is to assess and collect a premium that accurately represents the risk exposure. Many employers misunderstand the importance that audits play in the entire pricing mechanism.
Not Just The Cost Of Doing Business
While some employers may believe workers’ compensation is just a cost to do business, that belief is inaccurate. Owner/Operators who are proactive in the management of their program, knowledgeable about the individual items that drive the costs, and take an organized approach in verifying those individual factors, can and do get a handle on their premiums.