You can control the cost of your organization’s workers compensation insurance with a few insider tips used by workers compensation cost control consultants. What follows are three proven methods to reduce the cost of this vital insurance to the absolute minimum.

Your experience modification

Most contractors accept the experience modification (ex-mod) as an absolute number, with little ability to improve. That's a mistake that can cost large sums of money and put the electrical contractor at a competitive disadvantage when bidding for work.

Here is how you can improve your ex-mod. Begin by obtaining a copy of your experience rating worksheet. This document contains the payrolls, claims and other factors that make up the ex-mod. You should have received a copy of the worksheet in the mail, but if you did not, it is available from your insurance agent or broker, direct from your insurer, or by ordering a copy from the National Council on Compensation Insurance (NCCI) in Boca Raton, Fla.

With that worksheet in hand along with an up-to-date loss run, check the following: Ensure the claims that have been charged to the ex-mod under the column labeled "Act Inc Losses" belong to your firm. We have seen firms charged for claims that belong to someone else, so it is a good idea to confirm that your ex-mod only contains your company’s claims.

Be aware of your loss valuation date and ensure every claim possible is closed before that date. Generally, that date is six months before the ex-mod becomes effective. Otherwise, your ex-mod might include an open claim reserve that was settled. Remember, you can request the insurer’s claims adjuster to close claims before the loss valuation date.

Confirm that the insurer has correctly determined "loss adjustment expenses" and omitted them from incurred losses. These are the insurer’s expenses and should not be charged to your ex-mod. Finally, check the payrolls in the column labeled "payroll," and confirm that correct amounts are used. Also look for payroll for uninsured subcontractors charged on the premium audits. Payroll charged to these uninsured subs should be included in the ex-mod. This will lower the ex-mod.

Take advantage of the Construction Classification Premium Adjustment Program (CCPAP)

This is a potentially large credit, available to electrical contractors. It is available in 15 states: Alaska, Connecticut, Florida, Hawaii, Illinois, Maryland, Massachusetts, Missouri, Montana, Nebraska, New York, New Mexico, Oklahoma, Oregon and Virginia. All 15 states require the policy to contain at least one construction-related classification code and may have other requirements. Three states require the experience modifier to be no greater than 1.0. What follows is a general discussion of this credit, how it is administered and how to apply for the credit.

CCPAP is an often-overlooked credit that is available to contractors that pay wages greater than their state’s average. Since workers compensation premium is, at its simplest, a rate times payroll, the higher the payroll, the higher the premium. The CCPAP lowers the premium resulting from above-average pay. Unfortunately, in-depth details of the credit are not widely known, among contractors and even among insurance professionals. Depending on the state, the credit begins with an average hourly wage of about $20–$25.

If you have payroll in one of the 15 participating states, your policy should include NCCI Form NC-5000A. That form asks for gross payroll for the third calendar quarter of the year that precedes the policy’s effective date. NC-5000A has three columns: In the first, you provide a class code or description of the work (electrical, supervisory, clerical, etc.); in the next, you provide gross wages (after adjustments) for each classification of work; and in the third column, you provide the corresponding number of hours worked. In most states, if your business is new with no payroll in the previous year’s third quarter, use payroll and hours worked from the first complete quarter after the policy’s effective date.

Next, mail the completed form to either the state workers compensation rating bureau or the NCCI. They will calculate the credit and forward it to your insurer. The insurer will endorse your policy with the credit and carry it over to the final audit. In most states, the credit ranges from 5 to 25 percent of premium, depending on company-wide average wage. If you have operations in more than one state that has adopted the CCPAP, you will complete a separate application for each state. When the policy is audited after it expires, the insurer has the right to verify the payroll and hours shown on NC-5000A.

This credit is a useful tool for high-wage electrical contractors to save a large portion of their premium. It is also a great way gain an advantage over the competition. It is available for a reason, and you should take advantage of it.

Get the most from classifications

Contractors may allocate the payrolls of construction employees to different classifications of work, provided that the contractor keeps contemporaneous records that support the payroll allocation. You should preemptively discuss how to set up the payroll records with the insurer’s audit department so that wages are allocated to all of the classifications to which you are entitled.

As an electrical contractor your workers compensation policy will refer to as many as five classifications of work, as follows: #5190 - "Electrical wiring within buildings and drivers," #5606 - "Contractor executive supervisor," #8742 - "Estimators," #8810 - "Clerical office employees" and 3724 – "Electrical apparatus installation and repair." After the policy expires, the auditor assigns your entire annual payroll to one of these categories. That assignment will comprise the largest component of your workers compensation premium. You should purchase the online SCOPES Manual from the NCCI. It is a valuable tool that describes all classifications available and when they may and may not be used. That manual will help you allocate payrolls correctly.

Sometimes the classification with the lowest rate does not result in the lowest premium. Because classifications are a component of the experience modifier and the CCPAP, seeking the lowest class rate might be more than offset by a higher ex-mod and a lower CCPAP—and generate a higher premium. Especially in the construction industry, a higher ex-mod might be a greater handicap than a lower premium is beneficial. Care should be taken, and a knowledgeable expert consulted, when determining the best available workers compensation classifications.

Other steps to take

Another premium saving suggestion: prepare a pre-audit before the annual audit. When the insurer completes their annual premium audit, they work from the records that you provide. Help make the auditor's job more accurate by completing your own audit. Ensure the prepared payrolls account for all of the available credits, limitations and deductions. Many auditors will accept your prepared work product as their own.

Finally, when the audit is complete, request a copy of the auditor’s worksheets, review those worksheets with the auditor, and discuss how employees were classified. Then, when the final invoice arrives, be sure to compare it to those worksheets.

If you have any questions about the experience modification, the CCPAP or payrolls and classifications, feel free to email me. I have been doing this kind of work since 1979.