International Door & Operator Industry

SEP-OCT 2013

Garage door industry magazine for garage door dealers, garage door manufacturers, garage door distributors, garage door installers, loading docks, garage door operators and openers, gates, and tools for the door industry.

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AssociAtionnews By Andrew Stergiou and Alexandre Tadevossian During the last three years, many IDA members have seen an increase in their Workers' Compensation premiums due to higher experience modifications, which, in turn, may have been caused by a recent increase in claims or lower payroll. As IDA members renew a n d q u o t e Wo r k e r s ' Compensation insurance every year, they may see premium changes caused by what the insurance industry refers to as their Experience Modifcation Rate (EMR), but don't understand how it is calculated or who calculates it. EMR has a strong impact upon a business, and is a number used by insurance companies to refect both past cost of injuries and estimate future chances of risk. If an insured's losses in the past were about average, or expected, the EMR applied to calculate the future premium would be at 1.00; if it was better than average, the insured would get a rate credit, with an EMR of less than 1.00, and, likely, lower premiums. On the other hand, if the insured experienced worse than expected or average losses, the EMR would be greater than 1.00, and the future premium would likely rise. Again, an EMR of 1.00 is considered the industry average. What is experience rating? Experience rating is a process which modifes the published rates for job rating classifcations by taking into account the actual reported losses and payrolls of an electronically to the corresponding rating agency. This submission is called a "Unit Stat Filing." With this data the rating agency can calculate an employer's experience rating. individual business. Only businesses of a certain size qualify to be rated, and the guidelines differ among states. Experience rating leads to a premium determination that more accurately represents an employer's risk of sustaining losses, and can serve as an incentive to try to limit one's losses as much as possible, through better risk management or loss control procedures. Insurers often help in this endeavor by working with the insured to limit the likelihood of future claims. It is a win-win for everyone, the insured and insurer alike. Different states use different rating agencies; the most common one is National Council on Compensation Insurance, or NCCI. Although there are slight differences in calculation methodology, at the basic level the rating process is the same for all rating agencies. How does experience rating work? Once a year, the insurance company submits payroll and claims data V o l u m e The experience period is usually three full policy years, usually ending one year prior to the effective date of the modification. An experience rating calculation has three main data elements: claims, payroll, and estimated loss rates. In most cases, three years of payroll and claims are used. Rating results are expressed as percentages. A neutral rating is 100%, ratings above 100% represent higher risk and ratings below 100% represent lower risk. The lower the experience rating, the more favorable an employer's Workers' Compensation premium will be going forward. In general, the higher an insured's payroll, the more capacity an employer would have to absorb losses, thus obtaining a more favorable rating. Also, the less claims (both in terms of frequency and severity) the more favorable the rating. Estimated loss rates are factors through which payroll is run through to determine the estimated losses the average employer would have per class code. Having higher than estimated losses will produce a less favorable experience rating, and vice versa. Continued on page 54 4 6 I s s u e 5 2 0 1 3 53

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