Are your Workers
Compensation Premiums high and continue to increase each and every year? Paying attention to classification codes and
MOD rates may save you $100,000.
We all cringe each time we open an invoice and our insurance
premium notices are no exception.
Workers comp premiums are state regulated and may be
confusing and complex. Employee
Classification Codes and Rate Modification designations are often hard to
understand and the wrong code may be costing you a lot of money.
Here is an example: A
plastic injection molder with two hundred-employees may have many different
classification codes. In New York for
example an employee in manufacturing may be classified as 4452 (plastic sheets,
rods or tubes), 4475 (compression or injection), 4476 (assembly). Why does it matter? The workers comp loss rate for each
classification code varies, example: 4452 ($7.45), 4475 ($7.21), and 4476 ($6.05)
per $100 of payroll. A sales person or clerical support person
should have codes 8742 ($0.43) and 8810 ($0.20) respectively. If the employee is misclassified, the rate
differential is significant and you may be overpaying.
What should you do?
The National Council on Compensation Insurance (
www.ncci.com) or your states rating bureau will
be the place to find the proper classification.
The National Council on Compensation Insurance (NCCI) gathers data,
analyzes industry trends, and prepares objective insurance rates and loss cost
recommendations.
They provide the
manuals that practitioners and large companies depend on.
Additionally, you can check with your states workers
compensation rating board for further guidance and risk classification.
You should start with a general understanding of the classifications. Codes pertaining to your company will be
found on your current policy. Pay
attention to the rate change dates. New
ratings are generated from the state rating bureaus several times per year.
Once you understand the classifications, you can begin to
audit the policy. A spreadsheet with a
list of employees and corresponding codes will be helpful. Remember to look at the multiple
sub-classifications. All machine
operators are not coded the same. The
rates may be significantly different. A
machinist on the floor of the factory full time is different from a machine
operator working in an office. Each code
assigns a level of risk and higher risk codes are costly.
Now that your worksheet is complete you should prepare a
letter to the insurance carrier indicating the errors. Most times carriers will make the adjustments
resulting in lower premiums. If they
deny the changes and you still feel strongly, you can appeal to the state
workers compensation rating bureau.
Workers compensation insurance premiums may be one of the
highest cost line items for a company. Focusing
on the classifications and experience modification rating may save a company a $100,000
in premium. Compounding savings over a
five-year period is significant.
Try it yourself or consult with a specialized audit
practitioner.
This article was
authored by Brian Kelly and Gary Sandford at SMP Consulting Group. Please visit our website for further insights
(www.smpconsultinggroup.com)
or email me at bkelly@smpconsultinggroup.com.
