Workers’ Compensation Rates An understanding of basic rates & controls Copyright ERNWest all rights reserved

L&I is expected to announce “proposed” base rates for 2013 on September 17, and they should be published by the end of the month. 2 Copyright ERNWest all rights reserved 2012

Rates Overview Your rates are determined by two things: – The “base” rate assigned business activities you perform – The extent of the losses you have One you can control, one you can’t

Key Concepts Experience Modification Factor “Special” Factor Calculation Limits Base Rate Financial Impact of High Rates Best Ways to Control Rates

Workers’ Compensation Rates Labor Hours (exposure) Frequency of Claims Severity of Claims Type of Work Performed What your company pays in premium is a result of four things:

Overly Simplified Premium Calculation Labor hours x (Experience Mod x (base rate)) 6

Risk Class Base Rate Supplemental Pension Medical Aid Accident Fund Labor hours x (Experience Mod x (base rate)) + Stay at Work

The Department of Labor and Industries uses past injury data to determine the cost to employers for base or “composite” rates that are developed by “risk classification”. RCAccidentSAWMedicalS. PensionCompositeDeduction 6402$0.3556$0.0074$0.2466$0.0932$0.7028$0.1736

Experience Modification Factor Claim Costs Expected Loss Claim Costs Expected Loss Claim Costs Expected Loss More Less Average Experience ModifierGood Experience Modifier Poor Experience Modifier An EMF is a multiplier used to adjust an industry-based risk classification base rate up or down based on common ownership experience. 9 Labor hours x (Experience Mod x (base rate))

Experience Modification (EMF) Exposure - Labor Hours - Risk Class Claim Frequency - How often claims occur Claim Severity - How much claims cost 10

When Does A Claim Effect An EMF? Claims with a date of injury between will impact rates for calendar years but will “drop out” of experience on 7/1/09 - 6/30/10 7/1/10 - 6/30/11 7/1/11 - 6/30/12 7/1/12 - 6/30/ , 2013, , 2014, , 2015, , 2016, 2017 June 1st, 2013 June 1st, 2014 June 1st, 2015 June 1st, 2016 An employer’s experience period is simply the period of time during which labor hours and claim costs are captured to calculation one’s EMF 11 Labor hours x (Experience Mod x (base rate))

Experience Period Rates for the calendar year Are determined by claims within the experience period of 7/1/07 - 6/30/10 7/1/08 - 6/30/11 7/1/09 - 6/30/12 An employer’s experience period is simply the period of time during which labor hours and claim costs are captured to calculation one’s EMF 12 Labor hours x (Experience Mod x (base rate))

13 Labor hours x (Experience Mod x (base rate))

The “Special Rate” If an employer is able to prevent any time loss or permanent partial disability payments for the duration of their experience period, they can achieve a “special” rate that will decrease fairly dramatically. Claims with a date of injury between 7/1/06 - 6/30/07 7/1/07 - 6/30/08 7/1/08 - 6/30/09 7/1/09 - 6/30/10 14 Labor hours x (Experience Mod x (base rate))

Other “Special” Considerations The most your EMF can increase in one year is 25% IN MOST CASES Despite only being in your EMF for three years, if a claim causes your EMF to increase its maximum amount, your total rate increase will be 95% and it will take five years to work out of your factor, not three. Exceptions to the rule – Rule of “one” Above 1.33 and calculated to be below 1.00 Below 0.67 and calculated to be above 1.00 – If you have the “special rate” your 25% increase starts at your prior year’s “calculated rate 15

Employer’s Incremental Cost of EMF Increase Supermarkets In the example above the 25 FTE company with a 3% profit margin and EMF of 1.30 must find $313,334 more in annual revenue than an average company to cover their WC cost. Same example with the 500 FTE company with a 3% profit margin and EMF of 1.30 must find an additional $6,262,866 in annual revenue. Impact of High Rates 16

Controlling Rates 17 Safety, Safety, Safety – If you have no claims you need not worry about your rates Kept On Salary – Impacts “Special” discount, keeps claims medical, maintains control over claim, avoids reserves Modified Duty on a “reasonably continuous basis” – Avoids voc, avoids reserves, maintains control over claim Immediate Investigation & Reporting – Report the incident to ERNWest within two business days and we can start applying our resources to help you, the faster and better reporting we get reduces the time and hassle you have on complex claims

Which is easier? Driving millions of dollars in ADDITIONAL sales or……. Paying attention to your workers’ compensation claims?

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Contact Information 20 Group Manager Curran Bower (800) ext. 823 Group Director John Meier (800) ext. 827

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A Premium Payment Calculation Risk ClassHours/UnitsExp ModAccident FundMedical FundStay at WorkPensionCompositePayment , $0.0336$0.0223$0.0007$0.0932$0.1448$1, , $0.3556$0.2466$0.0074$0.0932$0.6486$200, , $0.1556$0.1179$0.0032$0.0932$0.3453$6,937 $209,407 Labor Hours *(Exp Mod *(AF + MA) + SAW + SPF) 309,347*(.9100 *($ $0.2466) + $ $0.0932) = $200,643