Being a part of the construction, industrial and/or energy industry, you are undoubtedly aware workers’ compensation insurance costs are primarily driven by two factors: your industry classification (class codes) and your company’s own workers’ compensation claim history (experience). These two factors along with your “actual payroll” are the three combined factors that determine your company’s Experience Rating Modifier (ERM). Your ability to qualify for new projects is often driven by your firm’s ERM. With 1.00 being the industry average, it is not uncommon in the marketplace to find firms with excellent safety practices and OSHA recordable loss records to have ERMs in excess of 1.00. So that is when you need BMBRisk.
BMBRisk, the risk management division of Bowen, Miclette & Britt Insurance Agency (BMB), is working to assist clients to monitor and manage their current and future ERMs. Traditionally, BMBRisk has provided clients with three basic services: loss control, corporate legal consulting and claims management. But BMB has recently expanded these services to include ERM auditing that is focused on auditing your claims, as well as your actual ERM of record, from the National Council on Compensation Insurance (NCCI), the governing body charged with computing ERMs. We first audit your ERM for errors, then we assist clients to implement occupational claim “best practices,” which are ways to manage your pre- and post-occupational claim activities, which will ultimately result in reducing your claims cost and therefore directly impacts your ERM over time.
To fully grasp the potential ways you can reduce your ERM, it is important to understand what an ERM is and why it carries the value and significance it does. First, the ERM is a mathematical illustration of your company’s occupational claims experience compared directly to your peer group.
The ERM uses 36 months of historical claims and payroll data (excluding the most recent 12 months) to arrive at a numerical representation of how your losses stack up against others in your same industry. All of the data from all of the members by “class codes” will be combined and the “average” will be 1.00. There are basically three parts to the ERM equation: ballast, expected losses and payroll. Ballast is a baseline and changes by industry. Expected losses are the frequency and severity of losses you are expected to have. And lastly, the amount (or size) of your total payroll has an effect on the ERM.
The losses that are considered in the ERM formula are weighted. Up to a point, the split point, loss dollars are given their full weight. Above the split point, the value of each dollar begins to decrease as the number of dollars rises. For example, having five $5,000 losses in your ERM data set will cause the ERM value to rise sharply when compared to just one $25,000 loss. This is true because of the discount applied above the split point.
For the past three decades, the split point across most of the country has been $5,000. NCCI has successfully pushed forward an initiative to increase the split point to $15,000 over the next three years. While the increase should be relatively neutral, the general presumption is those companies with good ERMs will likely see a decrease — thus making their ERM better — and those with high ERMs will likely see an increase (a result that will make a bad situation worse).
At present, the State of Texas has not adopted the new NCCI split points. There is speculation Texas will adopt some variant of the increased split point at a future point, but there is no way to accurately predict what the Texas Department of Insurance may or may not do.
BMBRisk has numerous tools and strategies to positively and proactively help you manage your experience modifier data, which is the foundation for managing your overall workers’ compensation cost, resulting in lower premiums and competitive cost advantages in your quest for new work. BMB is committed to helping our clients manage their ERM values, in light of the continued changes in the regulatory scheme from both NCCI and Texas Department of Insurance as they continue to implement changes to the experience rating system.
For more information, contact Dan Persha at dpersha@bmbinc.com or call (713) 880-7100.
