Workers’ Compensation RatesAn understanding of basic rates & controls

Copyright ERNWest all rights reserved 20121

L&I is expected to announce “proposed” base rates for 2013 on September 17, and they should be published by the end of the month.

2Copyright ERNWest all rights reserved 2012

Rates Overview

• Your rates are determined by two things:– The “base” rate assigned business activities you

perform– The extent of the losses you have

• One you can control, one you can’t

Key Concepts

• Experience Modification Factor• “Special” Factor• Calculation Limits• Base Rate• Financial Impact of High Rates• Best Ways to Control Rates

Workers’ Compensation Rates

Labor Hours(exposure)

Frequency of Claims

Severity of Claims

Type of Work Performed

What your company pays in premium is a result of four things:

Overly Simplified Premium Calculation

Labor hours x (Experience Mod x (base rate))

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Risk Class Base Rate

Risk

Cla

ss B

ase

Rate

Supplemental Pension

Medical Aid

Accident Fund

+

+

7

Labor hours x (Experience Mod x (base rate))

+Stay at Work

The Department of Labor and Industries uses past injury data to determine the cost to employers for base or “composite” rates that are developed by “risk classification”.

2012 Hourly Rates By Business Type & Risk Classification Code

Class *Examples of Businesses within the Class 2012AGRICULTURE4803 Orchards 0.7263$ 4805 Nurseries and Shellfish Farms 0.7499$ FOOD PROCESSING AND MANUFACTURING2104 Fruit and Vegetable Packing - Fresh 0.7790$ 3304 Meat, Fish and Poultry Dealers - Wholesale 1.2006$ 3702 Breweries, Wineries and Beverage Bottling 1.0650$ 3902 Fruit/Vegetable Canneries/Food Product Mfg, NOC 1.0976$ 3906 Bakeries and Confectionaries- Wholesale, NOC 1.0845$ 4302 Custom Meat Cutting 1.6407$ TRANSPORTATION AND WAREHOUSING2102 Warehouses, NOC, Grocery Dist. & Recycle Centers 1.3933$ 2105 Beer, Wine, and Soft Drink Distributors 1.3069$ STORES3303 Meat, Fish and Poultry Dealers - Retail 1.0628$ 6309 Hardware, Auto Parts and Sporting Good Stores 0.5617$ 6402 Supermarkets 0.7028$ 6403 Convenience Grocery Stores - No Gas 0.4574$ 6404 Florists 0.6694$ 6406 Retail Stores, NOC 0.3699$

TEMPORARY HELP7107 Temp. Help - Food Services 0.6193$ 7108 Temp. Help - Warehousing Services 0.5470$

RC Accident SAW Medical S. Pension Composite Deduction

6402 $0.3556 $0.0074 $0.2466 $0.0932 $0.7028 $0.1736

Experience Modification Factor

Claim Costs

.50

1.00

1.50

Expected Loss

Claim Costs

.50

1.00

1.50

Expected Loss

Claim Costs

.50

1.00

1.50

Expected LossMore

Less

Average Experience ModifierGood Experience Modifier

Poor Experience Modifier

An EMF is a multiplier used to adjust an industry-based risk classification base rate up or down based on common ownership experience.

9Labor hours x (Experience Mod x (base rate))

Experience Modification (EMF)

Exposure - Labor Hours - Risk Class

Claim Frequency- How often claims occur

Claim Severity - How much claims cost

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When Does A Claim Effect An EMF?

Claims with adate of injury

between

will impact ratesfor calendar

years

but will “drop out” of experience on

7/1/09 - 6/30/107/1/10 - 6/30/117/1/11 - 6/30/127/1/12 - 6/30/13

2012, 2013, 20142013, 2014, 20152014, 2015, 20162015, 2016, 2017

June 1st, 2013June 1st, 2014June 1st, 2015June 1st, 2016

An employer’s experience period is simply the period of time during which labor hours and claim costs are captured to calculation one’s EMF

11Labor hours x (Experience Mod x (base rate))

Experience Period

Rates for thecalendar year...

201220132014

Are determined by claims within the experience period of

7/1/07 - 6/30/107/1/08 - 6/30/117/1/09 - 6/30/12

An employer’s experience period is simply the period of time during which labor hours and claim costs are captured to calculation one’s EMF

12Labor hours x (Experience Mod x (base rate))

13Labor hours x (Experience Mod x (base rate))

The “Special Rate”

If an employer is able to prevent any time loss or permanent partial disability payments for the duration of their experience period, they can achieve a “special” rate that will decrease fairly dramatically.

Claims with adate of injury

between

7/1/06 - 6/30/077/1/07 - 6/30/087/1/08 - 6/30/097/1/09 - 6/30/10

14Labor hours x (Experience Mod x (base rate))

Other “Special” Considerations• The most your EMF can increase in one year is 25% IN

MOST CASES• Despite only being in your EMF for three years, if a claim

causes your EMF to increase its maximum amount, your total rate increase will be 95% and it will take five years to work out of your factor, not three.

• Exceptions to the rule– Rule of “one”

• Above 1.33 and calculated to be below 1.00• Below 0.67 and calculated to be above 1.00

– If you have the “special rate” your 25% increase starts at your prior year’s “calculated rate

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EMF/FTE 25 50 75 100 300 500

0.5 (15,657)$ (31,314)$ (46,972)$ (62,629)$ (187,886)$ (313,144)$

0.6 (12,526)$ (25,052)$ (37,577)$ (50,103)$ (150,309)$ (250,515)$

0.7 (9,394)$ (18,789)$ (28,183)$ (37,577)$ (112,732)$ (187,886)$

0.8 (6,263)$ (12,526)$ (18,789)$ (25,052)$ (75,155)$ (125,258)$

0.9 (3,131)$ (6,263)$ (9,394)$ (12,526)$ (37,577)$ (62,629)$

1 -$ -$ -$ -$ -$ -$

1.1 3,131$ 6,263$ 9,394$ 12,526$ 37,577$ 62,629$

1.2 6,263$ 12,526$ 18,789$ 25,052$ 75,155$ 125,258$

1.3 9,394$ 18,789$ 28,183$ 37,577$ 112,732$ 187,886$

1.4 12,526$ 25,052$ 37,577$ 50,103$ 150,309$ 250,515$

1.5 15,657$ 31,314$ 46,972$ 62,629$ 187,886$ 313,144$

Employer’s Incremental Cost of EMF IncreaseSupermarkets - 6402

• In the example above the 25 FTE company with a 3% profit margin and EMF of 1.30 must find $313,334 more in annual revenue than an average company to cover their WC cost.

• Same example with the 500 FTE company with a 3% profit margin and EMF of 1.30 must find an additional $6,262,866 in annual revenue.

Impact of High Rates

Controlling Rates

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• Safety, Safety, Safety– If you have no claims you need not worry about your rates

• Kept On Salary– Impacts “Special” discount, keeps claims medical, maintains

control over claim, avoids reserves• Modified Duty on a “reasonably continuous basis”

– Avoids voc, avoids reserves, maintains control over claim• Immediate Investigation & Reporting

– Report the incident to ERNWest within two business days and we can start applying our resources to help you, the faster and better reporting we get reduces the time and hassle you have on complex claims

Which is easier?• Driving millions of dollars in ADDITIONAL

salesor…….• Paying attention to your workers’

compensation claims?

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Contact InformationGroup Manager

Curran Bower cbower@ernwest.com(800) 433-7601 ext. 823

Group DirectorJohn Meier jmeier@ernwest.com(800) 433-7601 ext. 827

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A Premium Payment Calculation

Risk Class Hours/Units Exp Mod Accident Fund Medical Fund Stay at Work Pension Composite Payment

4904 12,619 0.9100 $0.0336 $0.0223 $0.0007 $0.0932 $0.1448 $1,827

6402 309,347 0.9100 $0.3556 $0.2466 $0.0074 $0.0932 $0.6486 $200,643

6406 20,092 0.9100 $0.1556 $0.1179 $0.0032 $0.0932 $0.3453 $6,937

                $209,407

Labor Hours *(Exp Mod *(AF + MA) + SAW + SPF)

309,347*(.9100 *($0.3556 + $0.2466) + $0.0074 + $0.0932)=

$200,643