| Workers Compensation premiums typically represent | | | | $2,000,000 a year in payroll for the prior three years |
| a significant portion of a restaurants property and | | | | and no claims in years 2003-04 and 2004-05 but one |
| casualty insurance cost. Premiums can represent as | | | | $4,000 claim in 2005-06. |
| much as 50% or more of the total annual cost. What | | | | The experience modification factor for the 2007-08 |
| you ultimately pay in premium is determined by the | | | | policy if the $4,000 claim is $3,400 medical and $600 |
| losses you incur. Incurred losses are the sum of the | | | | lost wages would be approximately .85. Looks great. |
| losses your insurance company has paid plus the | | | | You have a credit mod but if the claim was medical |
| amounts they expect they will have to pay to settle | | | | only the modification factor would be .82 or 3% |
| and close your claims. | | | | lower. This $4,000 claim will be used to calculate your |
| The development of your workers compensation | | | | EMR in years 2008 and 2009 as well as the 2007 |
| premium has essentially two elements which | | | | policy year. |
| determine your cost. The first element is determined | | | | There are several other factors in the formula such |
| by your classification which is the same for all | | | | as expected losses, payroll and the stabilizing value |
| restaurants. Advisory rates are developed by the | | | | that effect your final modification. Unless there is a |
| National Council on Compensation Insurance for most | | | | significant change in those factors the mod in our |
| states. Insurance companies either adopt these rates | | | | example would remain 3% higher for policy years |
| or file for a deviation from these rates which can be | | | | 2007, 2008 and 2009. |
| either a credit or a debit. | | | | Let's translate that 3% into premium dollars. |
| The second element that determines your premium is | | | | Depending on how much schedule credit (schedule |
| your experience modification rating (EMR). The | | | | credits are discretionary credits underwriters can |
| application of the experience modification factor adds | | | | apply to workers compensation rating) is being |
| another dimension to your insurance cost by adding | | | | applied to the policy, using advisory rates in Illinois and |
| what is basically a risk financing component. | | | | a $2,000,000 payroll you are talking about a minimum |
| Your EMR is promulgated through the use of a | | | | premium difference of $1,800 at zero schedule credit |
| complex formula and is developed by comparing your | | | | to a savings of $1,100 per year at a forty percent |
| actual claims to the expected claims of a restaurant | | | | schedule credit. These amounts would increase with |
| of similar size. It is through the application of this | | | | increases in the advisory rates in subsequent years. |
| formula that you ultimately pay for a portion if not all | | | | Not only is it important to implement a return to |
| of your own losses. The EMR is calculated using the | | | | work program and stay in touch with injured |
| three prior year's payroll and incurred losses. A | | | | employees but it is equally important to work with an |
| portion if not all of the claim you have in 2006 will be | | | | insurance company who has managed care |
| paid for in policy years 2007, 2008, and 2009. | | | | arrangements with local doctors, clinics and hospitals |
| For example, a policy effective 11/1/2007 would use | | | | in your area. This will allow you to reap the benefits |
| payroll and incurred losses for the policy years 11/1 | | | | of pre negotiated pricing for your employees care. |
| 2003-04, 11/1/2004-05 and 11/1/2005-06 to develop | | | | Let us show you: |
| the EMR. Many states have adopted the experience | | | | Why an experience mod of 1.0 is just average. |
| rating adjustment (ERA) which reduces all medical | | | | What your minimum and controllable experience |
| only claims by 70% before they are used in the | | | | modification factors are |
| calculation of your EMR. | | | | How prearranged medical care and a return to work |
| A medical only claim of $4,000 will only use $1,200 in | | | | program can reduce your premiums |
| the calculation of the EMR. Conversely a $4,000 claim | | | | A safety program, return to work policy and |
| that was $3,400 medical and $600 in lost wages will | | | | managed care arrangements can have a significant |
| use the entire $4,000 to calculate your EMR. | | | | impact on reducing your workers compensation |
| How does that affect your premiums? | | | | premiums, the indirect cost of claims and improving |
| Let us take a restaurant in Illinois averaging | | | | employee morale. |