October 2022 - Competitive Edge Insurance

How Do You Reduce Experience Modification?

If there’s one thing a business owner doesn’t want, it’s paying high workers’ compensation insurance premiums. One way to decrease the workers’ comp premiums that you pay, however, is by reducing your experience modification.

Below, we’ll chat about experience modification: What is it? Why should you care about your rating as a business owner? And what can you do to reduce experience modification, and therefore, worker’s compensation costs?

Let’s dive in.

WHAT IS EXPERIENCE MODIFICATION?

First things first, what is experience modification? Experience modification, according to The Workers’ Compensation Insurance Rating Bureau of California (WCIRB), is calculated by comparing a business’s actual losses to its expected losses.

Actual losses include “medical and indemnity claim costs resulting from a work-related injury that an insurance company has paid or expects to pay in the future.” Expected losses represent the amount of loss an insured party experiences compared to the amount of loss similar insured parties have.

Experience modification might also be referred to as a workers’ comp experience mod, an EMR safety rating (EMR stands for experience modification rate), or Ex Mod.

WHAT IS AN EXPERIENCE MODIFICATION RATE?

An experience modification rate (EMR) is assigned to every business that purchases worker’s compensation insurance. The EMR is a number that reflects the company’s past losses due to worker injuries. It is used by insurers to help predict future worker injury claims and to set premiums for worker’s compensation insurance.

There are various elements that can affect a business’ EMR. These can include:

The type of business
The number of employees
The industry, and
The state in which the business is located

Businesses with a high number of worker’s compensation claims will typically have a higher EMR.

FORMULA FOR CALCULATING EXPERIENCE MODIFICATION

Experience Modification = Actual Losses / Expected Losses

These losses involve several factors, including:

The number of worker injury claims filed
The cost of those worker injury claims, and
The amount of time that has passed since the last worker injury claim was filed

EMR’s are based on information from your insurance claims history, reported to the National Council on Compensation Insurance (NCCI), over the past five years. However, only claims from the past three years will be assessed by insurance agencies.

If you’re a newer business that has less than three years of claims history, your EMR is typically calculated at a base rate of one.

WHY SHOULD I CARE ABOUT EXPERIENCE MODIFICATION?

A business’s experience modification rate represents, numerically, how safe your business is compared to others in your industry.

Insurance companies use your ex mod to evaluate and measure the amount of risk they are taking on by having you as a client. A higher ex mod means paying higher workers’ compensation insurance premiums.

Standard ratings begin at one; one means your business is as safe as the average. For businesses who have had safety incidents, however, they’ll likely receive a number higher than one—perhaps a 1.2 depending on the accident or number of accidents. As for small businesses with spotless records, they might even score lower than one.

This considered, you might be asking yourself: How does my business fare? What is the highest experience modification rate possible? Workers’ Compensation Consultants tell us that any ex mod over 1.0 could be considered high if you’re comparing your business to its industry average.

In fact, “if you are comparing to the best performers within your industry, who may have very low mods, a 1.00 could be considered high.”

WHAT IS CONSIDERED A GOOD OR BAD EMR?

As a business owner, you’re always looking for ways to save money. Worker’s compensation insurance is one of those necessary evils that can eat up a lot of your budget if you’re not careful. One way to keep your worker’s compensation costs down is to maintain a good experience modification rate.

EMRs can commonly range between 0.48 to 1.25 or higher. The lower the rating, the better. A high rating, above a 1.0, is considered a bad EMR and will increase your worker’s comp premiums.

Again, worker’s compensation insurance rates are based on your company’s claims history. The more claims you have, the higher your rates will be. Your EMR is a way to measure this claim history and predict future costs.

A good EMR is one that is below average for your industry. For example, if the average EMR for construction companies is 0.85, a company with an EMR of 0.75 would be considered a good EMR.

HOW TO REDUCE EXPERIENCE MODIFICATION

So, how can you reduce or improve your experience modification rating? Below, we will provide you with some guidance.

IDENTIFY YOUR RISKS

The first step is to identify your risks. Each business will face its own unique set of them. Conduct a risk assessment to find out what your business’s risks are. As the adage goes, “you can’t fix what you don’t know.”

IMPLEMENT A KILLER SAFETY PROGRAM

At the core of a low experience modification rating is a stellar safety program. After all, no injuries or incidents equals no claims—and no claims equal the lowest possible EMR.

Now, before you doubt the effectiveness of a top-notch safety program, let’s look at the statistics. The Occupational Safety and Health Administration (OSHA) reports that “employers who establish safety programs (and return-to-work programs) can reduce costs related to workplace illness and injury by up to 35%.”

With reduced costs up to 35%, imagine how much more you’ll be saving on your workers’ compensation premiums. The basics of your safety program should include:

Safety Meetings
Safety Tests
Safety Equipment and Tools (i.e. safety goggles, safety shoes)
The list goes on

Safety, of course, will look different for every industry. The bottom line, however, is to provide and do whatever you can to prevent employees from getting hurt or sick.

So, ensure that employees:

KNOW HOW TO SAFELY PERFORM THEIR WORK

Don’t assume employees ‘just know’ how to do their job or work off the bat. As an employer, it’s your responsibility to train and teach your employees.

HAVE THE PROPER TOOLS AND EQUIPMENT

For employers with remote employees, this might be as simple as providing ergonomic office equipment to reduce carpal tunnel workers’ comp claims!

Read on to learn what workers’ compensation looks like for remote employees.

ARE REWARDED FOR SAFE BEHAVIOR

Consider implementing a safety-incentive program.

OSHA recommends safety-incentive programs, which reward “workers for reporting near-misses or hazards.” Safety-incentive programs typically reward employees for reporting unsafe conditions and making the workplace safer altogether. Programs “provide positive reinforcement for reporting illnesses and injuries.”

A FINAL WORD

Throughout all of this, it’s crucial to ensure your management and leaders are on board. Additionally, by documenting the safety measures you’ve put in place, the chances of lowering your EMR increase; thus, decreasing workers’ compensation insurance premiums.

Underwriters will be more likely to provide better terms and lower insurance premiums for businesses that document and articulate what they’ve done and the steps they have in place to reduce risk. Depending on the size of your business, you could save thousands of dollars.

It’s a win-win.

Read on for more information on risk mitigation: what is it and how can you do it?

Why Increases in Inflation Might Mean that Your House is Underinsured

in News

Reviewing “Rising Inflation Can Mean Your Home Is Underinsured”

It’s no secret that inflation has been on the rise lately. In fact, it’s been increasing at a steady rate for the last few years. This might have you wondering if your home insurance policy is still adequate. If your policy was purchased when inflation rates were lower, then it’s likely that your coverage is now worth less than it was before.

With the inflation rate rising, that means that the cost of rebuilding a home after an insured event will also rise. Homeowners need to be aware of this and make sure that their home insurance policy provides adequate coverage.

Don’t worry, though! According to a recent article entitled, “Rising Inflation Can Mean Your Home Is Underinsured” from Syracuse.com, there are a few things you can do to make sure that your home is properly insured despite inflation.

One way to do this is to purchase extended or guaranteed replacement cost coverage, which will pay for more of the cost of rebuilding in the event that inflation has raised prices.

Homeowners should also check their policy for inflation guard coverage, which will automatically raise coverage limits to account for inflation. Finally, if homeowners are worried about being underinsured, they should talk to their insurance company or agent to get a better understanding of their policy and what it covers.

By taking these steps, homeowners can be sure that they are adequately protected in the event that their home is damaged or destroyed.

Interested in learning more? Read on for the full article.

Rising Inflation Could Mean Your Home Is Underinsured

By Ben Moore | NerdWallet

The cost of home construction is skyrocketing due to inflation, and this could spell trouble for homeowners. Increases in the cost of lumber and other building materials, in conjunction with continued supply chain issues and labor shortages, could leave many homeowners underinsured if they need to rebuild after a covered insurance claim.

Should disaster strike, homeowners without enough coverage could find themselves digging into their wallets to cover the shortfall. Now is the time to be certain you have enough insurance to pay the cost of what it would take to rebuild your home, also known as replacement cost. Here’s what you need to know.

Know your home’s replacement cost

Insurers use replacement cost calculators to determine how much dwelling coverage is needed to rebuild your home. Information about your home, like its square footage, construction materials and the year it was built, are all incorporated into the estimated replacement cost.

You can also take steps to determine your home’s replacement cost on your own. One method involves multiplying your home’s square footage by the current cost of construction per square foot in your area, said Alan Himmel, a public insurance adjuster in Florida, by email. “You can get an idea of per square foot building costs by calling the builders association in your area, an insurance agent, or even … contractors.” Most estimates will range from $100 to $200 per square foot, according to HomeAdvisor.

You can also hire a contractor to provide a construction estimate, or have an independent insurance agency pull multiple homeowners insurance quotes to get a sense of what each insurer believes it will cost to rebuild your home.

Be sure to check the declaration page of your policy to see if you’re covered by replacement cost or actual cash value, especially when it comes to your personal property. Replacement cost coverage pays to repair your home or replace your belongings up to your coverage limits, without factoring in depreciation, or the loss of value over time. This means that your insurance company will pay to rebuild your home to the condition it was in before the claim, plus replace your personal property with new items, like paying for a new laptop regardless of the depreciated value of the lost one.

Meanwhile, actual cash value does account for depreciation and will likely mean having to pay the difference between what your policy covers and how much it costs to fully replace your belongings. For example, if your sofa is lost in a covered fire, your insurer will only pay for what the sofa was worth when it was destroyed, not the amount it would cost to replace it with a brand new one.

Consider extended or guaranteed replacement cost coverage

Extended replacement cost coverage can be added to a home insurance policy to help offset such uncertainties. This coverage will pay a percentage over your dwelling coverage limit if that amount isn’t enough to completely rebuild. For example, if your policy’s dwelling coverage is $100,000 and you have 25% extended replacement cost coverage, your insurer will pay to rebuild your home up to $125,000.

If you want full assurance that your insurer will cover the entire cost to rebuild your home, regardless of how much construction costs increase, consider guaranteed replacement cost. “The most confident I ever am when I sell a policy is when the client has a guaranteed replacement cost endorsement,” says Peter Conte, an independent insurance agent in New York City. “They can sleep better because, come time for a claim, they know they’re getting their house back.”

Guaranteed replacement coverage typically comes with a higher premium. It may not be available from all insurance companies, and it may not cover older homes.

Check for other coverage options

Many home insurance policies come with an inflation guard, which can offset the possibility of being underinsured due to expected inflation increases. An inflation guard will automatically raise your coverage limits to account for inflation when your policy is renewed.

Your premium may rise due to the inflation guard, but don’t lower your coverage limits just to save on home insurance. “The inflation guard is actually there to help you stay in line with the inflation rate of the U.S. dollar,” says Conte.

If you live in an older home, check your policy for ordinance or law coverage. In the event of a covered claim, this coverage will pay the cost to meet current building codes when rebuilding. Without it, you’ll likely need to pay out of pocket for any work done to abide by building codes, even if you have guaranteed replacement cost coverage.

If you’re still worried about being underinsured, talk to your insurance company or agent, as they’re best equipped to break down your policy, including what’s covered and what’s not. Be sure to keep them informed of any changes you make to your home, such as upgrades or renovations, so they can increase your coverage limits accordingly.

Parametric Risk Insurance: What You Need to Know

in General Business Insurance, News

What if you could have insurance that paid out when a specific event occurred, regardless of the cost of the damages? This is what parametric risk insurance is all about.

In this blog post, we will discuss what parametric risk insurance is, how it works, and who can benefit from it.

What is Parametric Risk Insurance?

Parametric risk insurance is a type of insurance that pays out a predetermined amount of money when a specific event occurs. The benefit of parametric risk insurance is that it does not require an assessment of the damages caused by the event in order to make a payout. This can be helpful in situations where traditional insurance would not cover the entire cost of the damages.

Why Do You Need It?

Parametric risk insurance can be used to cover a variety of risks, including natural disasters, business interruptions, and even political risks. In many cases, parametric risk insurance can provide coverage that would not be available through traditional insurance policies.

One of the key benefits of parametric risk insurance is that it can help businesses to manage their exposure to risk. By having a parametric risk insurance policy in place, businesses can be sure that they will have some financial protection in the event of a major loss. This type of insurance can also help businesses to avoid the hassle and expense of making a claim on their traditional insurance policy.

What is Catastrophic Risk Insurance?

Catastrophic risk insurance is similar to parametric risk insurance in that it pays out a set amount of money when a specific event occurs. However, catastrophic risk insurance is designed to cover much more severe events than parametric risk insurance. Catastrophic risk insurance is typically used to protect against natural disasters, such as earthquakes or hurricanes. It also protects against riots or terrorist attacks.

An example of a business that has used parametric catastrophe risk insurance is an airline. In the event of a plane crash, the airline would receive a payout that would cover their losses without having to go through the process of filing a claim.

What is Parametric Home Insurance?

Parametric risk insurance has many benefits over the standard homeowners insurance. One of the main advantages is that parametric risk insurance can cover a broad range of events that are not typically included in homeowners insurance policies, such as flooding.

Another advantage of parametric risk insurance for homeowners, is the speed of a claims payment. With a standard home insurance policy, you need to have your home inspected, get cost estimates from contractors, and in some cases wait for work to be completed before receiving full reimbursement. However, parametric policies pay out as soon as the insurer can verify that the event occurred.

Another benefit is that parametric risk insurance claims can be paid out much more quickly than traditional insurance policies. This is especially useful in widespread disasters, where the claims process can be delayed for months. In addition, parametric risk insurance policies do not have deductibles or exclusions, so the process of making a claim is much simpler.

Why is Parametric Insurance Important?

Parametric risk insurance is important because it pays out a benefit when certain conditions are met, without the need for a detailed claim process. This can be incredibly useful in situations where traditional insurance would be impractical or too expensive.

Some parametric policies can provide cover for things like natural disasters, business interruption, and even death. This means that they can offer protection against a wide range of risks.

Parametric insurance can be used to supplement traditional insurance, or as a standalone policy. Parametric insurance can help to protect against unexpected events and give peace of mind in knowing that you have some financial protection in place.

Examples of businesses that have used parametric risk insurance include manufacturers, government agencies, and airlines. In each of these cases, the policyholder was able to receive a payout that covered their losses without having to go through the process of filing a claim.

What is One of the Main Advantages of Parametric Insurance?

One of the main advantages of parametric insurance is that it can help to transfer risk from one party to another. This can be particularly helpful if the party who is taking on the risk is better able to manage it. Additionally, parametric insurance can help to reduce the overall cost of risk. This is because parametric insurance typically pays out a fixed amount of money, regardless of the actual loss that is incurred. As a result, parametric insurance can help to stabilize costs and protect against large losses.

Parametric risk insurance can be particularly helpful for businesses that are exposed to catastrophic events. For example, it can be used to protect against losses that occur as a result of a natural disaster. Parametric insurance can also be used to protect against other types of risks, such as the failure of a key supplier.

How Big is the Parametric Insurance Market?

The parametric insurance market is growing rapidly. As reported by Business Wire, “the parametric insurance market was valued at $11.7 billion in 2021, and is estimated to reach $29.3 billion by 2031, growing at a CAGR of 9.9% from 2022 to 2031.”

Why is Parametric Insurance Growing?

There are a few reasons why parametric insurance is growing. One reason is that traditional insurance can be difficult and time-consuming to file a claim with. Another reason parametric insurance is growing is because it can be used to cover a variety of risks. This type of insurance provides businesses with a way to manage their exposure to these risks.

A Final Word

Utilizing parametric risk insurance can be an effective way for your business to address and cope with risks, but it is important to understand how it works before purchasing a policy. If you are interested in learning more about parametric risk insurance, contact one of our advisors today. They will be able to help you determine if this type of insurance is right for your business.

Additional Insured vs. Loss Payee: What’s the Difference?

in General Business Insurance, News

There are a lot of terminologies to keep track of in the commercial insurance world—two of them being additional insured and loss payee.

While additional insureds and loss payees are endorsements that extend insurance coverage to a third party, there are key differences in the scope of coverage provided in each.

Below, we’ll discuss the difference between an additional insured vs. a loss payee.

Additional Insured

An additional insured is a third party—either an individual or business entity—who is added to an insurance policy at the request of the named insured because they have a liability exposure in the relationship.

Typically, an additional insured would be someone who is working with the named insured on a project. For example:

A business partner
Contractor

Insureon provides a great example: Say “the owner of an office building hires a janitorial company to clean its premises. If a visitor gets injured after tripping on a box the owner left in a hallway, the janitorial firm could be exposed to litigation.”

Therefore, “to protect itself, the janitorial company would ask the property owner to list it as an additional insured on the owner’s general liability insurance or business owner’s policy (BOP). That way, if the injured visitor sues the janitorial services company for negligence, the building owner’s insurance policy will defend the company.”

When listed as additional insured, the party is then protected under the terms of the policy just as the named insured.

Loss Payee

A loss payee, on the other hand, is a third party who is entitled to receive payment from an insurance policy in the event of a loss.

The loss payee is typically a lender (i.e. bank, mortgage company, the lender who financed the purchase of a piece of equipment insured under the policy) who has a financial interest in the property that is insured under the policy.

If that property is damaged or destroyed, the loss payee will receive compensation from the insurance policy.

Sound a little complex? Here’s a great example from Embroker:

You own a pizza restaurant (yum!) To make your delicious pizzas, you’ve rented “your pizza ovens from another company. If you add that company to your commercial property policy as a loss payee, both you and that company could receive payments if a fire breaks out in the restaurant and damages… the rented ovens.”

Why do both parties receive payments? “Because both have insured interest in the property that was affected.” It’s important to note, however, that the loss payee has first rights on insurance claim payments rather than the named insured.

A loss payee is added to a policy via a “loss payable clause,” which is typically added to a commercial auto or a commercial property insurance policy.

Key Differences: Additional Insured vs. Loss Payee

While additional insureds and loss payees are both parties who are protected under an insurance policy, the scope of coverage that each provides is quite different.

The key difference between an additional insured and a loss payee is that additional insureds receive liability protection whereas loss payees receive property damage coverage.

Additional insureds are protected in the same way as the named insured, while loss payees are only entitled to receive payment in the event of a loss.

Moreover, additional insureds are typically added to a policy at the request of the named insured, while loss payees are typically lenders who have a financial interest in the property that is insured under the policy.

When deciding whether to add an additional insured or loss payee to your policy, it’s important to understand the difference between the two so that you can choose the endorsement that properly protects your interests.

Learn More

In any project, it’s important to make sure you have the proper insurance to protect yourself and all parties involved.

A Certificate of Insurance (COI) gives a summary of what coverages someone has, whether it be general liability, workers’ compensation, or property. A COI can also include a description of coverages that might be there or attached; such as additional insured status or waivers of subrogation.

Read on for more on what you need to know about certificates of insurance.

Get to Know Our Founder: Her Rotary Involvement

in News, Video

Brenda Jo Robyn is not like most business owners. Her background in epidemiology, love for running, and involvement in the Rotary Club of Coronado, California set her apart.

Watch the video below to hear more about Brenda Jo’s involvement in rotary, and the three primary causes that she supports.

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What is Rotary?

First, what is rotary? According to the official website, “Rotary is a global network of 1.4 million neighbors, friends, leaders, and problem-solvers who see a world where people unite and take action to create lasting change – across the globe, in our communities, and in ourselves.”

Their Mission

At Rotary, their mission is to “provide service to others, promote integrity, and advance world understanding, goodwill, and peace through our fellowship of business, professional, and community leaders.”

Brenda Jo’s Rotary Involvement

As you can see from her t-shirt, Brenda Jo is part of the Coronado Rotary Tech Team. This is one of three areas she focuses on in the rotary.

“During COVID we wanted to keep meetings going,” says Brenda Jo. “So, a gentleman in our club started doing Zoom meetings, and I joined a year and a half ago to help out.”

Today, the Rotary Club of Coronado conducts hybrid meetings with international speakers and past youth—this is where Brenda Jo helps out.

“I am on the Tech Team and get to help set up. I do the actual recording [and] help with making the video afterward. It’s been really enjoyable, and it’s kept me up to date with tech as it keeps moving forward!”

The other two areas of Brenda Jo’s focus include:

End Polio Now (Did you know polio is still not eradicated?), and
Low Tide Ride and Stride

The Low Tide Ride and Stride event happens every year.

“Once a year,” says Brenda Jo, “you get to run, [walk], or ride your bike on the beach… on super low tide.”

The Low Tide Ride and Stride event is the “Coronado Rotary Club’s biggest fundraiser with a majority of the proceeds going to help support local combat-wounded veterans and first responders.”

“We raise quite a bit of money every year for these organizations and their families,” says Brenda Jo. In fact, hundreds of thousands of dollars have been donated over the years.

When we asked for Brenda Jo’s final thoughts on rotary, all she had to say was, “I love Rotary. Love, love, love Rotary!”
Interested in hearing Brenda Jo chat more about another area of her expertise—commercial insurance!? Read on to learn about understanding classifications for workers’ comp dual wage.