How to Reduce Your Workers’ Compensation Premium

By: Timothy Salzsieder, CIC, CRM

Florida workers’ compensation rates are projected to rise by an average of 8.9% in 2012. This marks the second consecutive year of increasing rates on top of a 7.8% average increase in 2011. Aside from the Florida workers’ compensation rate increases, on a national level NCCI (National Council on Compensation Insurance), the largest national provider of work comp and employee injury data, has proposed changes to the experience modification factor which could further impact workers’ compensation costs.

Workers’ Compensation coverage has not been a huge priority or issue until recently as most of the focus has been on health and medical insurance or property insurance. Risk managers and business owners need to closely examine and manage areas of their workers’ compensation program to offset or mitigate recent rate increases.

In the interest of brevity we would like to provide a brief overview of the following areas which should be evaluated as they have a direct impact on the cost of your workers’ compensation premium:

Classification Code Employers offer a diverse array of jobs based upon the needs of their business. A classification system was designed to group similar employers so that each classification reflects exposures in common to them. Workers’ compensation rates are assigned to each classification based upon the frequency and severity of losses within each classification. It is important to be classified within the correct classification code as there is a rate associated with each class code which directly affects the workers’ compensation premium.

Credits Florida provides several incentives to employers as a reward for implementing administrative programs. Employers can receive a 5% credit for implementing a documented drug-free program and can also receive an additional 2% credit for implementing a safety program (subject to meeting eligibility criteria). Contractors in select classification codes, paying above average wages, are also subject to receipt of additional credits subject to determination of average hourly wage.

Claims history and experience modification factor are based upon your individual loss experience. Your loss experience is measured in relation to your firm’s peer group via an experience modification factor. A factor of 1.0 is average (unity experience modification factor). A credit factor rewards favorable experience while a debit factor increases less favorable loss experience. Prudent business owners work to reduce the frequency and severity of claims. Partnering with your carrier to prevent or reduce the cost of injuries has a direct impact on your premium. Proposed changes to the calculation of experience modification factors will amplify the benefits of having favorable loss experience.

Dividends Florida workers’ compensation rates are uniform and are administered by the Office of Insurance Regulation. While this would appear to imply a level playing field, not all carriers are the same. Workers’ compensation carriers differentiate themselves based upon loss control and claims expertise, level of customer service, and dividend payment plans. A poor result on a botched workers’ compensation claim can result in increased premiums for years to come. Carriers often provide dividend plans as an incentive to reward favorable loss experience. The competition for Florida workers’ compensation business is intense with many carriers providing substantial dividends.

If you are with a PEO or leasing firm you may not be receiving a dividend, and an evaluation and breakdown should be conducted to determine the costs associated with each of the individual components of a bundled program. Separating or breaking out the payroll from the health and workers’ compensation insurance can provide substantial benefits including reduced costs and the opportunity to receive workers’ compensation dividends. Now is an ideal time to evaluate your insurance and payroll options in further detail as the potential impacts of wage base limits are muted. We represent many workers’ compensation carriers that offer “pay as you go” features which can be linked to payroll firms to provide continuity and a seamless administrative program which can provide you with the benefits of maintaining your own workers’ compensation policy.

Please feel free to contact me directly at Commercial Insurance Specialists, LLC with any questions or to further evaluate aspects of your workers’ compensation and risk management program.

About the Author
Timothy Salzsieder, CIC, CRM, is Managing Director of Commercial Insurance Specialists, LLC (www.cisllcfl.com) a commercial property/casualty insurance agency based in Tampa, FL. Salzsieder works with business leaders to reduce their cost of risk and has almost 20 years of experience in the commercial insurance industry with premier national firms on both the carrier and brokerage sides of the business.