Workers’ Compensation – Joys of the Experience Modification
An Experience Modification – who wants it?
In California, insurance carriers file Workers’ Compensation rates and pricing adjustments with the California Department of Insurance for approval. These rates are used to develop the manual premium. The carrier then applies the infamous Experience Modification for employers that develop adequate payroll within their businesses to qualify. This qualifying payroll amount and the modification is determined by the Workers’ Compensation Insurance Rating Bureau (WCIRB).
I advise employers that their Experience Modification relates to their Workers’ Compensation costs just like your driving record affects your auto insurance. The lowest modification comes with no Workers’ Compensation claims. Your actual modification is based on how your business compares to other similar businesses across the state of California. If your claims are lower than the average for your payroll level, you will develop a discount or credit modification. On the other hand, if your claims are higher than the state-wide average, you will develop a surcharge or debit modification. Sounds reasonable, doesn’t it?
Experience Modification Explained
If an experienced rated employer should have some claims, that policy year will come to an end and the policy is renewed with none of those claims having an effect on the Experience Modification. How could that be, you ask? Well, all of those claims will make their way into the modification calculation the following year and they will affect the modification for a three year period. This means that you could have a bad claim early in year one and your modification will not be affected until the start of year three.
Kind of like watching a glacier… Doesn’t look like much is happening but given the proper amount of time, it will have a significant affect. Let’s do our best to make sure the affect is a positive one.
This is a very old system that came along when you still had milk delivered in glass bottles on the front porch. Unfortunately, there is no reform in sight. Managing your payroll into the correct classifications and proper claims management is critical to obtaining the best Experience Modification for your business. Most insurance companies have Loss Control services that can help an employer identify accident-causing issues before a problem occurs. Creating a safe working environment is not only good for your employees but will save the business money in the long run.
At Garland-Sturges & Quirk, we are happy to review your Experience Modification history and claim history at no cost to the business.
Please call us to discuss your Experience Modification even if you do not have one yet.