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Insurance - A basic explanation of Experience Rating & its benefits to the employer

image Austin Goolsby, Vice President, TexCap Insurance, Dallas, TX

SAN ANTONIO - It’s six to one and half a dozen to another whether you refer to a company’s NCCI experience rating as an EMR or EMOD. At the end of the day they are the same in relative terms but how they are computed on behalf of a business is as unique as the company itself.





    Let’s start by what the National Council on Compensation Insurance (NCCI) does and why they’re “Experience Rating Plan” is a benefit to employers. The NCCI is an insurance rating and data collection agency that is only concerned with workers compensation and employer’s liability. They are a non-profit organization analyzing industry trends within every industry classification. Their examination of costs, rates and legislation are currently instituted in thirty-six states by way of state insurance departments, like the Texas Department of Insurance (TDI). They use untold amounts of data reported by the insurance companies appointed in each state to configure work comp rates. The Experience Rating Plan is a vital piece in an employer’s final cost of insurance as it relates to workers comp and is applied in two ways. It alters the final net premium paid by using a business’s unique loss information and it incentivizes an employer to develop and implement loss prevention that encourage return-to-work programs. If there wasn’t an Experience Rating Plan an individual company’s loss prevention practices wouldn’t be considered and everyone would be subject to manual rating, which is essentially an average of estimated losses per industry and each company under the same classification would pay their premium based on individual payroll as it relates to that specific class as a whole.
    So what information is considered? The primary loss information used to figure the rating are the three years prior to the expiring term. Moreover, when your workers comp expires this year the NCCI will use the years 2014-2015, 2015-2016 and 2016-2017 loss information in their rating. This allows the insurance company time to report the information to NCCI and it consequently allows an employer time to implement safety measures to prevent past losses from reoccurring. If there isn’t prior coverage, an insurance company can use manual rating in conjunction with a scheduled credit. In order to qualify for the Experience Rating Plan a business must have a minimum premium of $10,000 or have payrolls that would generate and average of at least $5,000 of premium during the previous two years.
    Except for a couple of industries in select states, Texas is one of only two states where workers comp is elective. Texas also has a state accident limitation, which helps minimize the impact of a severe loss on a company’s rating. Effective 7/8/2018 a $251,000 cap is put on catastrophic losses. Meaning if a loss is $500,000 only $251,000 can be considered in the rating factor. Due to large losses being so infrequent this limitation helps alleviate the impact on ratings. The limitation does vary by state and in Texas its reviewed annually by TDI and adjusted to account for inflation, among other things.
    Now back to the real-world application and how this effects day to day operations. The vetting of a company’s experience, reputation and capacity, along with verifying insurance, are all common practice during the pre-qualification process, but more and more an employer’s rating is becoming a significant factor when receiving an invitation to bid. The folks awarding projects are peering into an employer’s safety measures and using their rating as a gauge. Most of those enforcing this measurement are requiring companies to have a rating of less than 1.00, and some higher profile projects require a rating of less than 0.85. Every company should strive to have a safe working environment for their employees, both in the office and on site, and that’s the whole idea behind the Experience Rating Plan, but completion dates are moved up, change orders happen and mother nature usually impacts a project along the way. At the end of the day, a company’s strategy and approach to the health and safety of its employees will reflect in their individual rating and their insurance will shield against the unexpected.
    Austin Goolsby is a Vice President of TexCap Insurance, an independent insurance agency headquartered in Dallas, Texas. He is one of the leading members of the construction division at TexCap Insurance and has over 8 years of total experience in the field, on the building material supply side and insurance aspects of the industry. For more information please visit www.TexCapINS.com or you can contact Austin directly at 972-720-5384 or agoolsby@TexCapINS.com.


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