The Connection Magazine AIM MUTUAL Spring 2019 | Page 3

WORKERS’ COMPENSATION
WORKERS’ COMPENSATION
RATES DECREASED,
SO WHY DID MY
PREMIUM INCREASE?
BY: HEATHER H. KORTENKAEMPER, CPA, FINANCIAL ANALYST, A.I.M. MUTUAL
MANY BUSINESS owners in the Commonwealth rejoiced when
the Workers’ Compensation Rating and Inspection Bureau of
Massachusetts (WCRIBMA) notified all members and subscribers
of a general revision of rates resulting in an average rate decrease
of 12.9 percent on policies effective after June 30, 2018. This does
not mean that all employers experienced a decrease in their
workers’ compensation premium. Several factors are involved in
pricing workers’ compensation plans, and these factors can result
in premium increases or decreases. As an employer, it’s important
to understand these factors to ensure you don’t overestimate the
impact of the rate reduction and lose focus on managing injury
costs.
First, the stated decrease is an average, so manual rates for
certain class codes have actually increased for policies effective
after June 30, 2018. For example, class codes 4113 “Glass
Manufacturing – Cut” and 8748 “Automobile Salespersons” have
actually increased by 7.3 percent and 3.4 percent, respectively.
Among the roughly 400+ individual class codes, approximately 20
percent increased.
Second, the experience modification
rating factor is an important component in
the premium calculation. The Experience
Modification Rate (EMR) is calculated
using the history of an insured’s own actual
losses and the average insured’s losses
within the same classification (EMR=Actual
Losses/Expected Losses). Decreased rates
often correspond to periods of favorable
workers’ compensation results, meaning
that expected losses are likely lower.
Keeping your actual losses constant with
lower expected losses will actually increase
your EMR and your premium. In other words,
you may need to reduce actual losses in
order to maintain the same EMR. The EMR
calculation includes three years of loss activity, so it will take time
to remove the impact from a severe claim. Of course, the costs of
an injury are more than just the workers’ compensation premium.
The additional business expenses incurred can include overtime
payroll hours, temporary workers, and additional training costs.
Rate decreases may convince some insurance carriers that the
market is less attractive and lead them to scale back the scope of
loss control and other services. Insurance companies may reduce
their participation in the Massachusetts workers’ compensation
market and look for other markets. Reduced participation in the
voluntary markets can also drive more policyholders into the
Assigned Risk Pool, which may not be as favorable to you as the
voluntary market.
Decreasing rates are not unique to Massachusetts as other
New England states are also reducing rates. If you are responsible
for managing your company’s workers’ compensation costs,
decreasing rates may seem like good news. Perhaps it is. Just
don’t overestimate your cost savings until you know the full
impact, and keep vigilant over injury prevention.
HEATHER H. KORTENKAEMPER, CPA, is a Financial
Analyst at A.I.M. Mutual with over 12 years of accounting
experience. Previously, Heather held audit and financial
reporting positions at Deloitte & Touche LLP and Bay
State Milling Company. She is responsible for financial
reporting, tax, and internal finance projects. She holds a
BA from the University of Rochester and has an MBA and
Master’s in Accounting from Northeastern University.
3