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Assigned Risk Pool With a .85 E-Mod – How Can This Happen?

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Assigned Risk Pool E-Mod With A Low E-Mod

The Assigned Risk Pool looks like a failure even with a low E-Mod.  I recently received two calls on a very sore subject with certain groups of employers. One exact question was – How in the world can my company be placed into the Assigned Risk Pool with a very low Ex-Mod? (Their E-Mod was .85).

Picture Of Trucks With Cars Above Assigned Risk Pool Trucking Companies
Wikipedia – transport-auto.com

The Workers Compensation voluntary market is a very strange animal at times. I have seen employers with an E-Mod of .78 being placed into the pool. Certain market segments such as trucking, movers, temporary employment agencies, lawn services, delivery services, and oil companies have really taken a beating over the last few years. The voluntary market will just decide to not write a certain market segment regardless of the companies’ E-Mods.

Trucking companies and employment agencies have always had a very difficult time being underwritten without being placed into the assigned risk pool. Usually, the assigned risk pool has a rate structure that is 350% higher than the regular voluntary market. The reason for the much higher rates is the assigned carrier must take on the risk regardless of the company’s Emod or loss history.

Broken Chain Assigned Risk Pool Picture
StockUnlimited

Ironically, some companies have found the rates cheaper in the Pool than in the voluntary market. That is one of the “under the radar” secrets for certain companies. The insurance carriers in the voluntary market can file rate deviations that can be significantly higher than the advisory loss costs.

There are many different techniques to avoid being placed in the assigned risk pool. Having a dedicated safety program is a very proactive approach to reduce future X-Mods/E-Mods. Once your company has been informed that insurance can only be found in the Assigned Risk Pool, the choices are very limited.

There are alternative insurance programs available in most states. Some states even allow companies to opt out of Workers Comp coverage such as Texas and now Oklahoma. Captives are also another great alternative.

The bottom line is that insurance carriers do practice market segmentation. They are in business to make $$. If your company has a very low E-mod, the type of industry can make all the difference.

PEO’s As An Alternative

The Assigned Risk Pool represents a very tight spot in Workers Comp. We often receive calls and emails from employers as they are about to go into their state’s Workers Compensation risk pool or State Fund – sometimes called Assigned Risk. The function of the risk pool/state fund is as an agent of last resort.

The employer will be assigned to a certain carrier. The carrier has to take on a riskier client. The employer has to pay exorbitant fees to have coverage.

There are various reasons why the employer may not have been able to find coverage in the normal insurance marketplace. The usual reasons are:

  • Experience Mod Factor is too high – 1.25 or higher
  • Carriers are not writing coverage for that type of business – trucking industry in 2002
  • Type of business is a very high risk – asbestos removal company

There are other reasons. The above are the ones we see most often.

What can an employer do to stop from going into a risk pool? Actually, once the company is headed into the risk pool, there is not much that can be done right away. Changing your safety program is the long term solution if your company’s Experience Mod is high.

They quickest way to avoid Assigned Risk Pool is to look for alternative coverages such as self insurance, captives, or PEO’s. Self insurance and captives take too long to set up and administer if you are within 120 days of being placed into an assigned risk situation.

Your company may find that PEO’s are the quickest and most economical way to avoid the Assigned Risk Pool. We have found PEO’s to be a great alternative, but make sure you know with whom you are dealing with as PEO’s were very not very regulated in the past. Understanding how PEO’s work would be your first step.

Assigned Risk Pool Easily Driven By Market Forces

The Assigned Risk Pool (ARP) remains one of the most confusing aspects to workers compensation policy ratings.  I have often heard this expression – ABC Company is in the ARP.  They must have had a high E-Mod or a really bad Workers Comp accident.   Nothing could be further from the truth.  There are many employers with an E-Mod less than .9 (a good risk) and/or have had no serious claims that are in the Assigned Risk Pool.

Picture of Three Employees Assigned Risk Pool Writing With Rating Board On Side
StockUnlimited

Often, there are just no Workers Comp insurance carriers that will write a certain type of employer in a certain state at a certain time.  We have seen trucking companies, staffing agencies, and other companies not being underwritten by the regular insurance market.  There is sometimes no rhyme or reason to why a workers comp insurance market for a certain type of employer dries up almost overnight.

The NCCI out of Boca Raton, FL administrates most of the ARP’s in the nation.  The states remain involved with setting rates and many of the functions.   Independent bureau states fully administer theirs on pools.

Many alternatives exist to the ARPs such as PEO’s, self insurance, and captives.   Be very careful when looking to cover your employees with alternatives that exist in today’s marketplace.  Each alternative comes with its own risks.

One of my main concerns about the Pool is the overwhelming cost of being in it. The assigned risk rates can be up to 700% more expensive than in the regular insurance market. No matter how safe an employer is, being in the Pool will result in a much larger insurance budget.   The Assigned Risk Pool is a very necessary evil.  Without it, there may be many companies that could not acquire Workers Compensation coverage for their employees.

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One Response

  1. Sometimes risks with excellent loss histories may be heading into the assigned risk pool because the agent does not a have a market for the risk. There are carriers who willingly take on truckers, lawn services, oil companies and like busiensses. Maybe try other agencies or brokers.

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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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