Workers Compensation Premium Miscalculation

The Calculation

Calculation of the correct workers compensation premium at a high level boils down to a simple formula:

Premium = Expense Constant + [Payroll x Class Rate x Experience Modification Factor (E-mod)]

Each of the items in the above formula requires detailed information and significant expertise to determine correctly. If any is determined incorrectly, the calculated premium will be incorrect. There is significant potential for errors in each determination. We have the experts on staff to review every detail of each of the components of the premium calculation to ensure its accuracy.

Why You Should Consider Us:
Because We Literally Wrote the Book on These Issues.

Yes, you could say we wrote the Book:

  • On audits;
  • On the Classification System (class code);
  • On the Experience Mod System;
    (or the e-mod; or the experience modification factor);
  • On the formula for High Deductibles;
  • On the definition of “Payroll” for purposes of calculating premium;
  • On all PEO workers comp issues, such as proper corporate combinations for e-mod calculations;
  • On the formula for Retros;
  • On the formula for scheduled rating.

Because we did.  And all of these items drive the final calculation of your workers’ comp premium.  

Why You Should Consider Us:  We Know This Stuff. 

After all, during our years at the National Council on Compensation Insurance (NCCI), that was precisely our job.  NCCI set the rules of the road for audits; the Classification System; for the calculation of e-mods and High Deductibles and Retros and Scheduled Rating.  And while at NCCI, we wrote the rules of the road for PEOs as to workers’ compensation. 

Together with our staff:

  • We oversaw all the rules that are applied to audits;
  • We wrote the descriptions for the 600+ Classifications in the Scopes Manual;
  • We wrote and implemented the U.S. e-mod system; including its formulas;
  • We created and implemented the complex formulas for High Deductibles;
  • We authored and implemented the definition of “Payroll”;
  • For PEOs, we wrote the rules for corporate combinations for their e-mods; and most of the other rules that effect PEO premium;
  • We created and implemented the complex formulas for Retros;
  • We created and implemented the complex formulas for Scheduled Ratings;
  • We wrote the definition of “Payroll” for determining workers compensation premium;
  • We authored and filed some 500 statewide rate filings used throughout much of the U.S., setting the premium levels on about $15 billion of workers compensation premium – every year;
  • We gained regulatory approval to use all of the above formulas and rules.

Earlier in his career, as Iowa Commissioner of Insurance, Bill Hager judged each of these matters and approved or modified the rules as submitted to the Department of Insurance. 

Standard Adjustments

Additionally, actual insurance rating procedures allow for several adjustments to the above calculated premium. Some of the more common adjustments include:

  • Premium discount – a reduction in premium for employers with an initial premium calculation above $10,000.
  • Deductible credit – a reduction in premium for employers who select a deductible for their policy
  • Drug free workplace credit – Some states (including Florida) allow employers a premium credit of 5% if they maintain a drug free workplace program.
  • Contracting Classification Premium Adjustment Program (CCPAP) – some states (including Florida) allow employers a premium credit that have workers classified by the NCCI classification program as “contractors” if the average wage of these employees is above certain thresholds.
  • Schedule Rating credits or debits – Some states (not Florida) allow an insurer to offer credits or debits related to the unique conditions of an employer (e.g. credits for automated work environment, safety officer on staff, debits for poor management commitment to safety, hazardous machinery, untrained workforce, etc.). Insurers must detail the rationale for credits and debits. Insurers must also behave consistently year over year.

What We Do, Step One: Was the Premium Calculated Correctly?
We analyze the Classification Code Determinations. We analyze the E-mod calculations. We analyze the audits. We analyze the Retrospective Rating Factors (if applicable). We analyze the Large Deductible Credits (if applicable). We analyze everything about your insurance policy to ensure that premiums were calculated correctly. All of these determinations can interact in complex ways. We wrote the book on these issues, including:

  • Basic Manual – contains the rules and procedures relating to the calculation of the manual premium before the application of any adjustments.
  • Experience Rating Manual – contains the rules and procedures relating to the
    determination of e-mods. In truth there are very few people, even at your insurance
    company, who understand all of the details of e-mod determination. We understand.
    We wrote the book on how e-mods are calculated.
  • Classification Manual – contains the detailed description of each workers compensation
    classification code. It is the highest authority regarding the determination of how
    workers should be classified for workers’ compensation. We understand. We wrote the
  • SCOPES Manual – contains an easy to understand description of each workers
    compensation classification code. We understand. We wrote the book.

We have the premium rating expertise on hand to compare the rating plans filed with State Insurance Departments to ensure that workers’ compensation premiums are calculated in compliance with the rating plans and appropriate state specific workers’ compensation statutes.

What We Do, Step Two: Challenge the Insurer. If you are the employer and we conclude the insurer has wrongly classified the job, we will take the matter directly to the insurer and insist that they properly classify the job and reduce the premium. We know insurance companies and are confident in working with them. We are both former insurance company executives. If you are the insurer, we will prepare a strong defense to the employer’s challenge of our classification decision.

What We Do, Step Three: Appeal to NCCI or the State Rating Bureau. In the event the insurance company does not agree with the right classification, NCCI and the State Rating Bureaus have an appeal process in place where an employer can appeal an insurer’s classification determination directly to NCCI or the State Rating Bureau. We know NCCI and the State Rating Bureaus. We are confident in our abilities to put forth a powerful case for the right classification. If the rating organization rules in favor of the policyholder, the insurance company must correct the classification and the resulting premium calculation.

What We Do, Step Four: Appeal to Your State Department of Insurance. Additionally, a number of State Departments of Insurance have an appeal process as well. That is to say, absent policyholder success before NCCI or the State Rating Bureau, a second appeal is available to the State Department of Insurance. As above, we are likewise confident in our abilities to work with all state Department of Insurance. We are former state insurance regulators and understand the process. Again, if the State Department of Insurance rules in favor of the policyholder, the insurance company must correct the premium calculation – in the favor of the policyholder.

What We Do: Step Five: Advocate Your Case. Your insurance policy is a contract between you and your insurance company. If your insurance company is not charging a premium allowed by the policy, the supporting rating manuals, and the filed rating factors, we will advocate on your behalf and take the matter to the next higher authority. We will directly apply our high level firepower to the case.

Ready to Work for You Now. This team is prepared now – as in today – to begin working with you. To determine whether you are paying too much premium because of erroneous experience mod calculations, too much because of erroneous classifications: in short too much premium, please contact Bill Hager at 561-306-5072 or for more information.