By Lisa R. Paul, CPCU
President, CEO
Paul Hanson Partners Specialty Insurance Solutions

The single greatest issue that drives our customers’ questions is their confusion regarding experience modifications and how they are assigned and calculated. Our most frequently asked questions are, “How can my losses have gone down and my experience modification has gone up?” “I discontinued a branch and its losses are still on my experience modification. Can’t I get it off?” “My workers’ compensation policy rnews this week and my broker just called to tell me my workers’ compensation experience modification went up. What can I do?”

Sound familiar? Experience modifications are calculated in most states by the NCCI (National Council on Compensation Insurance) through their field offices throughout the country. some states have their own workers’ compensation bureaus that calculate intrastate modifications (California, New Jersey, Pennsylvania, Michigan and Delaware).

Insurers report payroll and loss history for the past four years for every company that they insure for workers’ compensation to either NCCI or the above referenced state bureaus. This report is referred to as a “unit statistical report” which is due to the respective bureau six months after a policy expiration for calculation of that company’s experience modification for the next policy year. Once the unit statistical report is received by the bureau, essentially no modifications can be made.

While data is submitted for the past four policy years, the most recent year is deleted from the calculation. For example, a policy that has a term of January 1, 1997 to January 1, 1998 would have the following policy years used for calculation of the experience modification:

1/1/1996 to 1/119/97 — deleted from calculation
1/1/1995 to 1/1/1996 — used in calculation
1/1/1994 to 1/119/95 — used in calculation
1/1/1993 to 1/1/1995 — used in calculation

In this case, the unit statistical report to calculate the January 1, 1997 experience modification would be due to the bureau by June 1, 1996.

The time to negotiate, review and track the claims and calculation of this example is from June 1, 1996! Negotiate? That’s right, negotiate!

Companies should send a letter to their workers’ compensation insurers for the past four years and should request a loss run to include all paid claims, incurred claims, allocated expenses, description of each claim and a claims examiner status report on all open claims in excess of $5000. This should be done by your moving company every year, two months after your workers’ compensation policy expiration, or in the above example by February 1, 1996.

Once this information is received, review it with your insurance broker. Are any of your claims still open where the employee has returned to work or has been given a release to work? Are multiple claim numbers assigned to the same claim? (If so, this increases the experience modification as smaller claims are calculated in their entirety while large claims are discounted and not used fully in the experience modification). Are there pending claims that should have been subrogated to others who were employing that employee on their date of injury? Are employees off on workers’ compensation receiving weekly indemnity payments, when they can return for some light duty work, thus reducing indemnity payments and outstanding reserves?

This review opens communication between yourself and the claims examiner, helping to close claims in a partnership with your insurer that will reduce your costs in the long run.

Have your broker confirm in writing the agreed-to revisions and follow up by asking for a copy of the unit statistical report before it is filed!

Once received, your broker can calculate your experience modification with software that is readily available in the marketplace, allowing you to plan five months before your next policy renews for your workers’ compensation costs for the coming year.

Many states have passed legislation recently that allows the employer access to all information that impacts their workers’ compensation costs which means access to status reports on claims. Ask for this information, use it and negotiate open claims. The results and savings can impact your experience modification by as many as 25 points!

For more information on how to close workers’ compensation claims and reduce your experience modification call Lisa Paul at (800) 852-1968.