With apologies to Winston Churchill, Workers Compensation is a riddle wrapped in a mystery inside an enigma. But there is a key. And many companies have turned that key to their pleasure and profit.
One recent change in the system has a substantial cash value for organizations in New York State. In the past, the New York Compensation Insurance Rating Board (NYCIRB) set a fixed rate by which Work comp Insurance companies charge Workers Comp insurance premiums. That meant–whether you used a private insurance company or the State Insurance Fund–there was very little difference in the actual rate.
Which meant you didn’t have a lot of choices. The price was the price.
But now, since the 2008 New York Insurance Law went into effect, the system has changed. Now the NYCIRB only issues a “loss costs” base factor. Then insurance companies apply a multiplier called a “loss cost multiplier” (LCM). They multiply the final rate by the LCM per $100 of payroll. The LCM varies from insurance company to company. It can go from as low as 1.0562 to as high as 1.4850. (Already, you can see there’s a difference of over 40%!)
Just for example, let’s take a masonry supply company with a payroll of a million dollars. The classification code for Masonry is 5022. The rates would work as follows:
LCBR LCM FINAL RATE PAYROLL TOTAL
11.12 X 1.0523 = 11.50 X 10000 = $35,000
11.12 X 1.4837 = 15.30 X 10000 = $45,000
That comes out to a $10,000 difference in the rate you pay in the final premium. Well worth shopping for!
What has happened in New York–and has long been law in other states–is that the Workers Comp insurance business has become genuinely competitive. And that means you are no longer locked in. Now you can go shopping for rates!
So go shopping. And when you find something you like, call your insurance broker to get you the best rate.
But getting lower rates is just the beginning. To really come out ahead, you should audit your own Workers Compensation premium payments for the past seven years. You might come up with enough money in refunds–money owed to you–to get your own stimulus package!
As much as 40% to 60% of all businesses get overcharged on their premiums. And most companies never know it–losing tens of thousands of dollars in overpayments. Most employers look at Workers Compensation insurance as just another unavoidable business expense. They sign the forms and never give it a second thought. But companies should analyze their Workers Comp policies. They just might turn out to be a means to recover lost money and repair a leaky bottom line.