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.