E-Mods

In the example below, a discrepancy related to whether two companies' workers' compensation experience is combinable could cost the company $672,100 in workers' compensation premium - per year!

January 1, 2008

You are a newly formed roofing contractor in the state of Florida with $8,000,000 in payroll.

Your premium should be calculated as follows:

Class Code

 

Description

Payroll

Rate

Manual Premium

8742

 

SALESPERSONS OR COLLECTORS—OUTSIDE

2,000,000

0.64

12,800

5510

 

ROOFING—ALL KINDS & DRIVERS

6,000,000

22.19

1,331,400

 

 

Total

8,000,000

 

1,344,200

 

 

Experience Modification Factor (E-mod)

1.00

 

 

 

Standard Premium

1,344,200

You work out a payment plan with your insurance company to pay $1,344,200 workers' compensation premium during the year.

July 1, 2009

Upon performing an audit of your company, your insurance company observes that you purchased some equipment from a competitor who has retired their business.

They decide that the competitor's loss experience should be used to calculate the E-mod for your workers' compensation policy. As a result, they calculate your e-mod to be 1.50.

Class Code

 

Description

Payroll

Rate

Manual Premium

8742

 

SALESPERSONS OR COLLECTORS—OUTSIDE

2,000,000

0.64

12,800

5510

 

ROOFING—ALL KINDS & DRIVERS

6,000,000

22.19

1,331,400

 

 

Total

8,000,000

 

1,344,200

 

 

Experience Modification Factor (E-mod)

1.50

 

 

 

Standard Premium

2,016,300

 

 

 

Premium Difference

672,100

August 1, 2009

Your insurance company sends you a bill for the premium difference - $672,100.

This bill is on top of all bills related to 2009 workers' compensation premium.

Notes:

 

 

 

 

 

The example above was simplified to demonstrarte the effect of experience rating errors, and does not include the effects of misclassification, premium discounts, or any other rating program generating premium credits or debits.

 Please contact Bill Hager at 561-306-5072 or bhager@expertinsurancewitness.com for more information.


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