I was asked recently to provide information on ways to save money on NY workers compensation insurance premiums.
This is a commonly asked question and for good reason. NY workers comp insurance can be a significant expense for any (try every) company’s budget.
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In this particular case, however, I didn’t want to just rattle off the standard list of accounting and planning tips that can save dollars. I tried instead to explain the two true driving forces behind NY workers comp insurance premiums and how to make a measurable impact.
A safe work environment and an organizational culture of safety are the most straight-forward ways to minimize NY workers compensation expense. This is not the answer that management at most businesses wants to hear because making these types of changes takes dollars and time. NY workers comp insurance premiums are based on the Experience Modifier or Exp Mod and the Carrier’s Loss Cost Multiplier or LCM (In competitive states).
Safety = Savings
The Exp Mod in basic terms is actual loss data compared against the expected loss for an organization of similar operations, size and classifications. The Exp Mod places the onus of safety on the organization by providing an incentive for safe work environments. In general, NY workers comp insurance carriers will look at the preceding 3-year period of losses.
Let’s say a large professional services office is paying $30,000 in workers comp. A firm that hits right on expectations has a Exp Mod of 1.0, but let’s say this firm has a great loss history and instead has an Exp Mod 0.9. When this Exp Mod is applied to the $30,000 in premium it were paying, its renewal ends up at $27,000.
That is a very simplified example. The actual calculation of Exp Mod is much more complex, but the point remains the same. Well run organizations with a culture of safety will drastically minimize their premiums. There is no other single way to drastically reduce the NY workers comp burden then through a healthy Exp Mod.
Choose Your Carrier Wisely
In states that allow competitive pricing, (Ohio, Washington, North Dakota, and Wyoming are monopolistic, meaning workers comp may only be bought through the State Fund), it is important to do business with an insurance carrier with a favorable loss cost multiplier.
Here is great example that I use to explain this expense:
Carrier LCM (Carrier Specific, although approved by the State) x Approved Loss Cost Rate (Standard rate set by the State for a specific job class code) = Price Charged Employer
If one insurance company has an LCM of 1.250 and another company has an LCM of 1.667, there will be a difference of 33% between their prices.
For example, say you’re a salesperson with a loss cost rate of $1.30 times an LCM of 1.250 = a price of $1.63 (carrier #1); a loss cost rate of $1.30 times an LCM of 1.667 = a price of $2.17 (carrier #2). You pay your sales staff $50,000 a year in wages, and here is how the LCM affects your premium:
Carrier #1: ( $50,000 / $100 ) * $1.63 = $815 in Premium
Carrier #2: ( $50,000 / $100 ) * $2.17 = $1,085 in Premium
You Just Wasted $270
The Rub
This is a lot of information, and it may seem very technical. You don’t have to be an expert in NY workers comp insurance to properly manage your NY business insurance program.
At The Murray Group, our business insurance specialists are here to answer all your questions and walk you through the process of properly setting up your NY workers comp insurance policy. Call us at (518) 456-6688. We’re here to help!