Claims Affect Premiums For Multiple Years
How do claims affect premiums for my company? This is a question we receive very often.
The first thing to look at is the state laws and rules on how your E-Mod or X-Mod is calculated. That will have some bearing on the length of time.
Most states calculate the E-Mod/X-Mod over three years. However, the three-year span does not “kick in” immediately the next year. What happens, for example in 2008 will not affect your insurance company premiums until the 2010 policy. Why? Workers’ Comp is calculated on a delayed system. The E-Mod for a claim in 2008 will hit the E-Mod in the 2010, 2011, and 2012 policy years.
Yes, you pay THREE times for a bad claims year. That is the way the Workers Compensation system is structured for losses. Do you pay 1/3, 1/3, and then 1/3 of the bad claims year of 2008? No, You will pay more like 60%, 60%, and 60%. But wait, that does not add up to 100%. You can now see how a bad claims year can be very expensive.
The usual reason for having a bad claims year is the number of claims, not just one big claim. The old saying that five $20,000 claims are much more expensive than one $100,000 claim is very true in almost all cases.
Update – The main rating bureaus – NCCI and WCIRB have both altered their E-Mod X-Mod formulas to make repetitive claims much more influential on what you will pay in future years for workers’ compensation coverage.
The NCCI or State Rating system that is in place amplifies the amount that the Work Comp carrier reserves on the claims. Is it a fair system? It is the one we have in place. The best way to stay out of the system is with a safety program, making sure that you are being charged the proper premiums, and making sure that the reserves on your files are accurate.
Next Up – SC Governor Sanford is now in Federal Court trying to keep Workers Comp under control in SC.
©J&L Risk Management Inc Copyright Notice