If you had a room full of business owners from the same industry, even from the same state, it would be difficult to find two companies paying the same rate for their workers’ comp. insurance. For example, if the room was filled with 35 HVAC companies in Maryland, there are probably 35 different workers compensation insurance rates in the room. Some businesses are paying a rate of $3.44 (per $100 of payroll) for HVAC techs, while others are paying $9.49. And that is before any credits or debits are applied. Here are five credits of which to be aware of:
- Experience Rating Plan Modification Factor:
Based on your past losses. It is a complicated calculation that can provide a credit of 35% to a debit of 50%.
- Schedule Rating Plan Modification:
Subjective credits or debits used by an insurance carrier to assist in the pricing of a policy. In theory, they should be based upon risk control management experience, safety program, hiring practices, etc. The maximum schedule rating credit is 25%. In order to assist the underwriter, by identifying and quantifying risk characteristics, an agent can help position the business. A suggestion is to use Pennsylvania’s risk characteristic chart. They identified the following risk characteristics for assignment of credits or debits subject to the maximum ranges (25% in Maryland):
- Features of workplace maintenance or operation -10% to +10%
- Risk elements not addressed in the Classification Plan -10% to +10%
- Availability of medical facilities in or near workplace -5% to +5%
- Safety equipment/devices present in/missing from workplace -5% to +5%
- Extraordinary safety programs applicable to workplace -5% to +5%
- Qualifications of employees -10% to +10%
- Accommodations/cooperation with carrier by management -5% to +5%
- Considerations related to policy expenses -5% to +5
- Other risk characteristics not addressed above (specified) -10% to +10%
- Premium Discount:
Each insurance company’s manual rate includes an allowance for administrative expenses. Since some expenses do not increase as premiums increase, insurers sometimes reduce large premiums by taking out some of these administrative charges. This is done through “premium discounts.” The amount of a premium discount increases with the size of the premium. These premium discounts are usually only a factor for large insureds. Keep in mind that this “premium discount” is NOT discretionary.
- Construction Classification Premium Reduction Program:
Some contractors may pay their employees comparatively high wages in relation to other construction employers. Since premium is based on payroll, Maryland created a premium adjustment program to avoid penalizing these construction class employers. Maryland requires that at least 50 percent of the payroll come from a construction code. To qualify for the program, employers must first be able to prove that the average hourly wage for all employees (even part-time workers) is greater than a specified minimum amount. Should the average wage be less than the set amount, the insured does not qualify for the program or its credits. Credits also fluctuate based on the average hourly payroll. The greater the difference between what the employer pays, on average, and the minimum qualifying hourly wage amount the higher the credit applied. The highest credit available in Maryland is 25 percent.
- Drug & Alcohol Free Credit:
Although Maryland does not utilize this program, many insurance carriers will apply this credit (which is most commonly 5 percent) if a business can: 1. Develop and disseminate a written drug-free workplace policy, 2. Conduct employee training on the policy; 3. Establish a drug testing policy to include: pre-employment, routine, post accident, reasonable suspicion and follow-up testing; and 4. Establish an employee assistance program (EAP);
If you know the credits available, know your rate, and know the maximum credits available, a business can make a better informed management decision on what type of loss control programs to implement for the year. Without knowing all the parameters, a business is like a football team playing without a game plan and without knowing the rules. At Insurance Force, we help assist our clients through education and developing a game plan to help them reduce and manage their workers’ comp. costs.