Workers Compensation Terms, Definitions & Glossary

To Help Employers Reduce Workers Compensation Insurance Premium Costs

Workers Compensation Terms, Definitions & GlossaryActual Experience Mod
This is your current experience mod, which is used in determining your workers comp premium. The official mod number for an employer is applied on to their workers comp policy but most of the time it contains errors that result in workers compensation overcharges for the employer.

Assigned Risk Plan
Sometimes called the Pool, this is a mechanism established by individual states to make sure that employers can obtain workers compensation insurance even if insurance companies are not willing to write such insurance on a voluntary basis. Assigned Risk plans in many states carry higher rates than the voluntary market. Employers that operate in states without an assigned risk and cannot buy coverage in the voluntary market are covered through the state insurance fund. Knocking down your experience mods can give you a better underwriting profile to enter the voluntary market for coverage.

Audited Premium
The final premium for the policy term, produced by auditing actual payroll after the policy period is over. Many employers dispute their audited premium as it may contain incorrect information, leading to higher premiums.

Classification Code
Also called Class Code. The workers comp premium rate commensurate with the risk associated with that workplace exposure. For example, the classification code for an office clerk should carry a significantly lower rate than the code for a healthcare, construction, transportation, staffing, manufacturing, or any other blue-collar industry worker. Misclassification is one of the most common causes of workers compensation overcharges.

Controllable Experience Mod
The controllable experience mod is the difference between your current mod and the minimum mod your company could have with no losses. When multiplying the controllable mod by a manual premium estimate, the controllable mod represents the dollars your company is leaving on the table, which is the difference between your company’s current mod and getting your current mod knocked down from workers compensation overcharges and obtaining workers compensation refunds.

Dec Page
Also called Declaration Page: It is the first part of your workers compensation policy that describes your estimated payrolls, classifications, experience mod, discounts, rates, credits, and premium. A thorough audit of all the components of the Dec Page can result in significant workers compensation refunds.

A return of premium, calculated after policy expiration, based on the overall performance of the insurance company or of a group of insureds.

A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Modifications to coverage during the policy period are “endorsed” on to the existing policy. On current policies, an endorsement can be issued to lower the experience mod and result in workers compensation refunds, credits, or lower monthly installments.

Excess Losses
In the Experience Modification Factor calculation, this is the amount of any single claim that exceeds the cut-off point for inclusion as a primary loss.  In the NCCI experience rating formula, this threshold is $10,000 in 2013, $13,500 in 2014, and $15,000 plus claim inflation for 2015 for an estimated total of $17,000 or $17,500.  Future adjustments for claim inflation in 2016 and beyond are expected. In the formulas used by other rating bureaus, the threshold varies. The increase in the split point formula has caused many experience mods to get worse because a higher amount of the losses is being accounted for in the primary losses.

A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations. In some states, owners/officers can be “Exempt” from workers compensation.

Experience Modification Factor
Also called Experience Mod, Experience Modifier, Experience Modification Rate, Experience Modification Rating, E-Mod, Ex-Mod, X-Mod, Mod, or EMR. An adjustment to Manual Premium, calculated by a rating bureau such as NCCI, based on historic loss and payroll data of an insured. Due to the complex nature of the experience modification factor, errors in calculating the mod can lead to an increase in your premium.

Experience Rating Split Point
In the promulgation of an experience rating modification, a split rating approach is used to reflect both the frequency and severity of losses. In 2013, the split point changed for the first time in 20 years, with further changes planned for subsequent years (see primary losses and excess losses for further information). This is why many employers are seeing an increase in their renewal experience modification, even though their losses have stayed the same. Workers compensation premium recovery is the fastest and easiest way to lower experience mods.

Governing Classification
The classification code on an employer’s workers compensation insurance policy that generates the most payroll aside from standard exception classifications such as clerical or outside sales (unless there is no other workplace classification applicable other than a standard exception). Misclassification of employees can result in higher premiums.

Interstate Experience Modification
An experience modification factor used by NCCI for employers who operate in more than one state. Most, but not all states, participate in the interstate rating system. A few states, such as New Jersey, Pennsylvania, Delaware, California, and Michigan, do not participate in interstate rating, but instead continue to calculate separate experience ratings for employers who operate in their jurisdictions, even if those employers also qualify for interstate rating. Those employers thus have one experience modifier applying to their operations in most states but a separate modifier calculated by the stand-alone state rating bureau. The separate stand-alone mod would apply only to workers compensation insurance premiums developed for the employer’s operations in that stand-alone state. These interstate experience mods create complications and may result in workers compensation overcharges.

Large Deductible Insurance Policy
An insurance plan for workers compensation that includes a per accident deductible that is greater than $100,000. Due to the large transactions involved, large overcharges may occur.

Lost-Time Claim
A claim for which an employee is compensated for being out of work due to a workplace injury. This also may involve a permanency award.

Loss-Sensitive Policy
A workers compensation insurance policy that adjusts premium charges based on the cost of losses covered by the policy. Types of Loss-Sensitive policies include Retrospective Rating and Deductible policies. There are many adjustments and additional billings involved in Loss-Sensitive policies. Many times employers with these types of policies receive large invoices years after policy expiration and they are not aware that there is something that can be done to lower these bills.

Manual Premium
Workers compensation premium calculated by multiplying payrolls by appropriate rates, before application of experience mod, schedule credit/debit, or premium discount.

Medical-Only Claims
Claims for which the only cost is medical care, without any lost-time benefits being paid.

Minimum Experience Mod
The lowest possible experience mod for a company. The mod when losses are equal to zero.

Modified Premium
Workers Compensation premium calculated after applying the experience modification factor. Here’s where having a lower experience mod, even by one point, can mean thousands of dollars in premium savings.

NCCI: The National Council on Compensation Insurance
The organization responsible in many states for determining proper Workers Compensation classifications, experience modification factors, and collecting data used for ratemaking. NCCI administers the Assigned Risk Plan in many jurisdictions. NCCI is a private organization, although it is often mistakenly thought to be a governmental agency. In fact, it is a non-profit privately held corporation owned by major insurance companies, whose executives constitute a majority of the directors on NCCI’s board. Since NCCI represents your insurance company, it’s good to have an independent firm perform a workers compensation review of your policies.

A professional employer organization (PEO) is a firm that provides a service under which an employer can outsource employee management tasks such as employee benefits, payroll and workers compensation, recruiting, risk/safety management, and training and development. It does this by hiring a client company’s employees, thus becoming their employer of record for tax purposes and insurance purposes. This practice is known as co-employment. PEOs can obtain workers compensation refunds by hiring experts to recover workers compensation overcharges.

Premium Auditor
The premium auditor determines actual exposure (remuneration) for a policy period, in order to determine the final audited premium. The auditor typically works either directly for the insurance company, or for a third-party company retained by the insurance company.

Premium Discount
A premium credit, based on size of the premium paid. It is normally given automatically on voluntary market policies, although retrospective rating or sliding scale dividend policies usually do not have a premium discount.

Primary Losses
In the Experience Modification Factor, this is the first $10,000 in 2013, $13,500 in 2014, and $15,000 plus claim inflation for 2015 for an estimated total of $17,000 or $17,500 for any single loss.  Future adjustments for claim inflation in 2016 and beyond are expected. In the formulas used by other rating bureaus, the threshold varies. The major increase in the dollar amount used to determine primary losses has caused many experience mods to get worse because a higher amount of the losses is being used as primary losses. Workers compensation premium recovery is an effective way for employers with high premiums to reduce costs.

Rating Bureau
NCCI is the Rating Bureau for the majority of states. Some states maintain their own separate rating bureau. Currently, the states of New York, New Jersey, Pennsylvania, Delaware, Massachusetts, California, Michigan, Minnesota, North Carolina, Texas, and Indiana, operate their own non-NCCI rating bureaus.

Residual Market
Also called Assigned Risk Plan. A pool for employers who cannot find coverage through the voluntary market.  The residual market has higher rates than the voluntary market. Employers that operate in states without an assigned risk and cannot buy coverage in the voluntary market are covered through the state insurance fund.

Retrospective Rating
A workers compensation insurance policy that makes a subsequent adjustment to premium, after policy expiration, based on losses generated during the policy period. The adjustment can go up or down, within set parameters, based on the losses generated during the policy period. Employers with retrospective plans need to be more diligent as they may incur large retrospective invoices long after policy expiration.

Schedule Credit
A discretionary premium adjustment credit based on the underwriter’s evaluation of special characteristics of a risk not reflected in the experience modifier.

Schedule Debit
A discretionary premium adjustment debit based on the underwriter’s evaluation of special characteristics of a risk not reflected in the experience modifier.

The concept of assuming a financial risk oneself, instead of paying an insurance company. Large firms often self-insure. Self-insured companies should make sure that they frequently have an outside firm audit their claims to make sure they are getting the most from their third-party vendors.

Short Rate Penalty
Penalty applied by insurers when a workers compensation insurance policy is cancelled by the insured before the expiration date of the policy. This penalty is steep in the early days of the policy, and gradually tapers off the closer the policy gets to the expiration date. Employers should be aware of their options before paying steep penalties.

Standard Exception
Classifications which are normally not included in the governing classification. These are clerical, outside sales, and often (but not always) drivers. Misclassification of employees may result in premium overcharges for employers.

Standard Premium
Premium after application of experience mod and Schedule Credit/Debit, but before Premium Discount.

State Insurance Fund
A quasi-public insurance company that provides workers compensation insurance coverage to private and public employers. The State Insurance Fund offers workers compensation insurance to any employer requesting it, making the State Insurance Fund an “insurer of last resort” for employers otherwise unable to obtain coverage.  Employers can lower their experience modification factor and have more options in the voluntary market come renewal time.

Voluntary Market
Workers compensation insurance written outside of the Assigned Risk Plan, for employers who can find insurance companies willing to write their coverage. The experience mod is one of the indicators that underwriters use when assessing whether or not they want to underwrite an insurance policy.

Wrap-Up Policy
A wrap-up is the consolidation of workers compensation, excess/umbrella and general liability insurance. Purchased by the project sponsor, the insurance is used to cover the interest of the various entities brought together for a single construction project. Wrap-up policy information is often processed incorrectly which leads to workers compensation overcharges.

Workers Compensation Audit
At the end of the year, when your workers compensation insurance policy expires, the insurance company performs an audit to determine your company’s actual workers compensation insurance premium for the policy period (as opposed to the estimated premium that was originally used in your policy). The workers compensation audit may result in a remarkable difference in your premium. Many times, due to errors and incorrect information, there is a significant additional premium owed by the insured after the audit is performed.

Workers Compensation Certificate of Insurance
A certificate issued by a carrier that demonstrates workers comp coverage, usually given to someone who has asked for this information to be provided. Used most often by contractors and sub-contractors to prove to their clients that they are covered for any injury claims and that the client is not liable for workplace injuries of employees of a subcontractor.

Workers Compensation Claim
An insurance policy claim due to an injury suffered by an employee. Higher claims frequency translates into higher premiums.

Workers Compensation Guaranteed Cost Policy
Most popular and most written workers comp insurance policy that is not subject to adjustment due to losses that occur during the policy term. In a Guaranteed Cost policy, once the premium is determined using the experience modification derived from past payroll and loss information, the only variable affecting premium that should change between policy inception and audit is payroll. This is in contrast to the various kinds of Loss Sensitive plans, such as Retrospective Rating, Retention Plans, or Sliding Scale Dividend Plans, where there is a premium adjustment made based on losses incurred during the policy term. Incorrect experience mods are the number one reason in overcharges in guaranteed cost policies.

Workers Compensation Rate
The cost of a unit of insurance, workers compensation is based on per $100 of each dollar paid in payroll. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices or NCCI.

Workers Compensation Premium Recovery
A service designed to review an employer’s current and prior workers compensation policies in order to recover overcharges and obtain refunds from insurance companies. This is the quickest and easiest way to lower an employer’s experience modification, obtain refunds, and see future savings. Besides obtaining refunds on old, useless policies, the employer will have a better underwriting profile to enter the renewal marketplace.

Workers Compensation Terms, Definitions & Glossary provided by the Workers Compensation Experts at Apex Services.

Recovering workers compensation overcharges and lowering employers’ premium costs have been our sole mission since 1994.