RISK MANAGEMENT DOES NOT ADMINISTER THE STATE'S WORKERS' COMPENSATION
POLICY, BUT... |
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Risk Management does administer a number of commercial workers' compensation
(WC) insurance policies for quasi-state agencies and some special State
programs. Here are some frequently asked questions and answers about
the premium associated with these policies.
How are WC policies rated?
The rating is sequenced as follows:
1. Establishing the correct classification for the
entity and its employees based on manual rules and classifications.
2. Assignment of correct payrolls to each classification.
3. Calculation of manual premium by the application
of manual rates, premium discounts (if applicable) and experience
modification for each classification to the appropriate payroll.
Why are employees placed in different classes and why are these
classes rated so differently?
WC insurance protects employees from losses resulting from work-related
injuries and diseases. Different occupations represent different physical
occupational hazards. An office worker, for example, is not exposed
to the same dangers as a construction worker. A park ranger is exposed
to different hazards than a marine patrol officer. The object of the
classification system is to group employers with similar exposures into
classifications so that the rate for each classification reflects the
exposures common to those employers. The system aims to apply equitable
rates to employers within the same classification. Occupations with
higher exposures pay more and vice-versa.
Tip. As an employer, you know exactly what your
employees do. Since classifications that sound similar may actually
carry quite different premium factors, work with Risk Management to
ensure that your employees are properly classified. One organization
may have one, a few or several different classifications.
Why is payroll used to calculate premiums and what records
does the insurance company use?
Payroll serves as an effective basis because it varies directly with
the exposure covered (the higher the payroll, the more exposure), it
is relatively easy to determine from available records and it is not
readily subject to manipulation by the employer. Payroll is determined
by payroll records, individual earnings records and tax records. Payroll,
for workers' compensation purposes, generally means money or substitutes
for money (such as a tool allowance). A manual exists for the purpose
of determining what is or isn't considered payroll for this purpose.
Tip. At the beginning of a policy term, you are asked
to estimate your payroll for the upcoming 12 months. Do your very best
to estimate as closely as possible. Take into account staffing (increases
and decreases) or program changes that you anticipate, as well as ongoing
union negotiations which might increase payroll. Your estimate will
eventually be audited and your final premium adjusted. A good estimate
allows for accurate budgeting.
What is the experience modification factor?
Simply put, your organization's loss experience is compared to that
of similar organizations. If you are better than average, a credit is
applied. If you are worse than average, a surcharge is applied.
Tip. While you have minimal control over the first
two premium factors (classifications and payroll), your effort (or lack
of effort) in controlling, preventing and reducing losses is within
your control. Your insurance company is anxious and willing to work
with you in this area. If you haven't already, contact them and get
started with a loss prevention program. A good program will positively
impact your loss experience, which will eventually earn you lower premiums.
Also, ask for loss runs. Review them to see if any errors were made.
Bring any questions to Risk Management Division and let us help you
find answers or make corrections.
Why will my premium be audited and what can I expect from an
audit?
Because your policy was issued based on estimates, after the policy
expires your actual records will be examined to determine the actual
final premium due to the company. The auditor may examine the classification
code assigned to each employee to be sure proper classifications were
used. The auditor will look at various records to determine the actual
total amount of payroll to be assigned to each classification. You may
be entitled to certain discounts and dividends. The auditor should make
sure these are applied correctly. After this process is complete, a
final audit report will be issued and it will likely result in the issuance
of an additional premium due or a refund due.
Tip. You should prepare for this audit by making sure
your records are organized and accessible. You should plan to spend
some time with the auditor to explain the fine points of your business
and answer any questions. This will ensure proper classifications are
used. You should examine the final audit report to see if any errors
were made. This audit will also assist you in estimating payroll for
the upcoming 12 months. Results of audits should never be a monetary
surprise.
More tips...
