Workers’ compensation coverage is required for nearly all businesses throughout the US. Depending on the state your company operates in, failing to adhere to workers’ compensation guidelines may result in potentially hefty fines and legal consequences.
According to recent studies, approximately 10 million US businesses have a workers’ compensation program. And it is estimated that between one and two thousand insurance carriers provide workers’ compensation coverage. With these numbers in mind, you may begin to understand why workers’ compensation overcharges affect companies nationwide. This article will discuss some of the primary factors that lead to overpaying for your workers’ compensation coverage.
Business Classification Discrepancies
Business classification codes are determined by organizations like the National Council on Compensation Insurance (NCCI) and state-specific rating bureaus. These classification codes significantly factor into calculating workers’ compensation premiums. The NCCI assigns around 700 unique classification codes, and the state-specific bureaus further add to this number. As a result, business classification errors may occur for many reasons, including:
- Lack of knowledge – Business owners and insurance professionals may not fully understand the complexities of the classification system. This lack of understanding often leads to business misclassifications.
- Miscommunication – When running a business, you may not have time to ensure your insurance carrier is provided with all the nuances of your business’s operations. This can lead to inaccurate risk assessments, thus influencing your premiums.
- Regulatory Changes – Workers’ compensation guidelines continuously evolve. And if your business or insurance carrier is unaware of an update, your workers’ compensation program may need to be revised accordingly.
- Operational Changes – Like workers’ comp guidelines, your business operations may evolve over time. And updates in your business operations often affect your classification code. Therefore, your insurance carrier must be aware of any operational changes in your business model.
Inadequate Review of Workers’ Compensation Premium Calculations
Even if your business comprehensively reviews its workers’ comp premium calculations and policy documents, overcharges and inaccuracies may go unnoticed. This may be the result of various errors or oversights, including:
- Payroll miscalculations
- Antiquated job descriptions
- Employee misclassifications
- Insufficient documentation – While this may pertain to various documents, inaccurate safety measure documentation is among the most common culprits. It is also among the most significant culprits since workers’ compensation programs and employee safety go hand in hand.
Errors in Experience Modification Factor
Experience modification factor (EMOD) is used to adjust workers’ compensation premiums based on historical data. Inaccurate EMOD calculations can result in businesses being overcharged up to 30% for their workers’ compensation premiums.
Are You Overpaying for Workers’ Compensation Coverage?
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