The MHEDA Journal - Second Quarter, 2012 - (Page 51)

WORKERS’ COMP INSURANCE Controlling Your Workers’ Compensation Costs How your experience modifier affects your bottom line BY PAUL PRAXMARER T he cost of workers’ compensation insurance would rank as one of the top five highest costs on a typical profit/loss statement for a company in the material handling industry. Your workers compensation insurance premium is determined by payroll, manual rate, insurer credits and debits, and your experience modifier. Controlling your experience modifier through claims management and safety programs are the only ways you can control your workers compensation costs. How Does the Experience Modifier Work? Payroll and losses are the main components in the calculation of the experience modifier. The experience modifier compares your actual loss experience with the expected experience of the industry average, which is valued at 1.00. If your losses are higher than the industry average, your cost of insurance will be higher than average. If your losses are lower than the industry average, your cost of insurance will be lower than average. An experience modifier of 1.25 would indicate that you would pay 25 percent more in premium than that of the average firm in the industry. A company with a more favorable experience modifier of .85 would be paying 15 percent less than the average firm in the industry. Understanding Your Experience Modifier Having a clear understanding of your experience modifier and how it is calculated is vital to keeping your workers compensation insurance costs as low as possible. In most states the experience modifier is calculated by the National Council on Compensation Insurance (NCCI). Other states such as California, Texas, Minnesota, Wisconsin, Indiana, Michigan, New York, Massachusetts, Pennsylvania, New Jersey, Delaware and North Carolina use different rating bureaus. These rating bureaus use a similar formula as the NCCI. There are four monopolistic states, Washington, Wyoming, North Dakota, and Ohio. In these states, the workers compensation coverage is handled through the state. A similar formula is used in the monopolistic states. Each year, insurance carriers report workers compensation class codes, payroll by class, and loss information by class to the calculating bureau, exactly six months prior to the policy’s expiration date. Three historical years of loss experience information and payroll data are used when calculating an experience modifier. Three years of data are used to prevent against skewed results that would occur if only one year was used. The current year of data is omitted from the calculation since it is reported prior to the expiration of the policy. Also, the payroll audit has not been completed. A high experience modifier can not only increase operating costs, but decrease sales. Many large customers will not allow a vendor on their premises if their experience modifier is over 1.05. Risk managers at large facilities will require a prequalification form which will request your experience modifier. The MHEDA Journal | Second Quar ter 2 012 51

Table of Contents for the Digital Edition of The MHEDA Journal - Second Quarter, 2012

President's Perspective
From the Desk of Liz Richards
Ask Your Board
Meet The MBOA
Mackinnon Equipment & Services
Member Profile
Bode Equipment Company's Office Supervisor Meredith Fowler is a jack of all trades
Customer Service Automation
Continued Growth Expected in 2012
The Off-Season
Convention Program - Re-Imagine Your Business
Convention Program
Exhibitor's Showcase Guide
Out of the Classroom, Into the Shop
The Link between Sales and Absorption: To sell more, service more!
Social Media and the C-Level: Objections Discussed
Sucession Planning and the Emerging Generations: Five Trends You Need to Know
Sucession Planning
Sucession Planning and the Emerging Generations: Five Trends You Need to Know
Work-Life Balance: It's All Up To You !
Controlling Your Workers Compensation Costs
Transactional vs. Consultative Selling
The Traits of Great Salespeople
Who's to Say What Is Sexy
Spotlight on MHEDA News
MHEDA University Calendar
New Members
MHEDA Milestones
New Products
Index of Advertisers by Product Category

The MHEDA Journal - Second Quarter, 2012