Short Rate Workers Comp Policies
The Short Rate Policy or Short Term Cancellation is when an employer and/or their agent makes the decision to cancel a policy before the renewal date.
There are many problems with Short Rate Policies including:
- The ominous Short Rate Penalty – This penalty can be significant, as the employer is making the insurance carrier receive less premium than canceling at the renewal date. The insurance carrier has to possibly take on more risk, as the carrier does not have as long as usual to recover their paid losses by charging a full policy term premium.
- Payroll Anomalies – We have been studying this phenomenon for the past few years and are still investigating the statistics. We have seen a disproportionate amount of payroll being loaded into, for example, a three month policy, and a new policy is then written. For some unknown reason, the Experience Modification Factor (E-Mod) can easily increase at a very rapid rate. The claims after the short-rate policy now have more claims vs. a lower amount of payroll. If both the claims increase and the payroll decreases sharply, the E-Mod can skyrocket.
The employer’s insurance history may be marred, as having more than one short rate policy in a few years time may indicate a “workers comp premium shopper”. This could result in less carriers being willing to write workers compensation coverage for an employer.
If you think that there is something wrong with your insurance policy, do not just switch the workers comp policy. First, at least try to work things out with your carrier until the renewal date. You have many rights as the insured and one of them is to question how the policy has been written and at the time of premium audit.