Being required to carry Workers’ Compensation Insurance is a fact of life for employers. But, the premiums you pay aren’t necessarily set in stone. In fact, there are ways to mitigate the financial impact by reducing your experience modification rating (EMR).
A company’s EMR is based on the concept that the premium employers pay should accurately reflect their risk level. Experience rating plans group employers in the same industry groups. For example, home builders are compared to other home builders, and retail stores are compared to other retail stores. The insurance loss experience of each group is compiled and then averaged. Every company’s loss experience is then measured against the group’s average, which is called the experience modifier.
Companies having loss experience that’s better than the group average are typically given an experience modifier of less than one. This modifier is then multiplied by the premium. Companies that have a loss experience worse than the average are usually given a modifier greater than one, resulting in a higher premium. So, the experience rating process creates a financial incentive for businesses to reduce their losses.
Lower Modifier = Lower Premium
While your company has no control over the loss experience of your industry or the rates assigned to your employee classifications, you can take steps to reduce your modifier, which can lower your premiums.
- Safety First. Maintaining a safe workplace can help reduce worker injuries. An independently conducted safety audit will indicate problem areas where you can make changes. Mandatory, and documented, employee safety training is another area where you can focus your efforts.
- Create a Return-to-Work Program. A return-to-work program can help you-you’re your valuable employees while, at the same time, reducing the cost of your workers’ comp claims. The program is designed to transition an injured employee from lighter duty work to their full-time capacity as soon as they’re able.
- Participate in State-Sponsored Programs. All 50 states have programs designed to improve safety in return for a reduction in workers’ compensation premiums. For instance, some states provide a premium reduction to employers that participate in a drug and alcohol prevention program. Ask your insurer about programs that are available in your state.
- Join a Group to Receive Premium Discounts. Some states offer premium discounts to recognized industry groups, such as restaurants, construction, health care and auto repair. To qualify for joining a group, your business must have a better-than-average safety history.
Review Your Classifications
Employees at many companies are often improperly classified on their workers’ compensation policies, and these errors can be very costly. For example, imagine if you own a construction company and your executive assistant was mistakenly classified as a roofer. The workers’ compensation rate for a roofer is, of course, much higher than the rate for clerical employees due to the inherent risk profile of the job. If you believe that your business has been given the wrong classifications, ask your insurance agent or broker for a review. You can also request a classification inspection from the National Council on Compensation Insurance (NCCI) or your state’s rating bureau.
By implementing these ideas, your efforts can make a big difference in how much money you spend on workers’ compensation insurance.