Quality Insurance From G.A. Crandall & Co., Inc

Workers Compensation premiums typically represent a significant portion of a restaurants property and casualty insurance cost.  Premiums can represent as much as 50% or more of the total annual cost.
 
What you ultimately pay in premium is determined by the losses you incur.  Incurred losses are the sum of the losses your insurance company has paid plus the amounts they expect they will have to pay to settle and close your claims.
 
The development of your workers compensation premium has essentially two elements which determine your cost.  The first element is determined by your classification which is the same for all restaurants. Advisory rates are developed by the National Council on Compensation Insurance for most states.  Insurance companies either adopt these rates or file for a deviation from these rates which can be either a credit or a debit. 
 
The second element that determines your premium is your experience modification rating (EMR).  The application of the experience modification factor adds another dimension to your insurance cost by adding what is basically a risk financing component.
 
Your EMR is promulgated through the use of a complex formula and is developed by comparing your actual claims to the expected claims of a restaurant of similar size. It is through the application of this formula that you ultimately pay for a portion if not all of your own losses.
 
The EMR is calculated using the three prior year's payroll and incurred losses.   A portion if not all of the claim you have in 2006 will be paid for in policy years 2007, 2008 and 2009.
 
For example, a policy effective 11/1/2007 would use payroll and incurred losses for the policy years 11/1/2003-04, 11/1/2004-05 and 11/1/2005-06 to develop the EMR.  
 
Many states have adopted the experience rating adjustment (ERA) which reduces all medical only claims by 70% before they are used in the calculation of your EMR.  
 
A medical only claim of $4,000 will only use $1,200 in the calculation of the EMR. Conversely a $4,000 claim that was $3,400 medical and $600 in lost wages will use the entire $4,000 to calculate your EMR. 
 
How does that affect your premiums? 
 
Let us take a restaurant in Illinois averaging $2,000,000 a year in payroll for the prior three years and no claims in years 2003-04 and 2004-05 but one $4,000 claim in 2005-06.
 
The experience modification factor for the 2007-08 policy if the $4,000 claim is $3,400 medical and $600 lost wages would be approximately .85.  Looks great.  You have a credit mod but if the claim was medical only the modification factor would be .82 or 3% lower.  This $4,000 claim will be used to calculate your EMR in years 2008 and 2009 as well as the 2007 policy year.
 
There are several other factors in the formula such as expected losses, payroll and the stabilizing value that effect your final modification.  Unless there is a significant change in those factors the mod in our example would remain 3% higher for policy years 2007, 2008 and 2009.
 
Let's translate that 3% into premium dollars.  Depending on how much schedule credit (schedule credits are discretionary credits underwriters can apply to workers compensation rating) is being applied to the policy, using advisory rates in Illinois and a $2,000,000 payroll you are talking about a minimum premium difference of $1,800 at zero schedule credit to a savings of $1,100 per year at a forty percent schedule credit. These amounts would increase with increases in the advisory rates in subsequent years.  

Not only is it important to implement a return to work program and stay in touch with injured employees but it is equally important to work with an insurance company who has managed care arrangements with local doctors, clinics and hospitals in your area.  This will allow you to reap the benefits of pre negotiated pricing for your employees care. 

Let us show you:

• Why an experience mod of 1.0 is just average.
  
• What your minimum and controllable experience modification factors are
  
• How prearranged medical care and a return to work program can reduce your premiums