HOUSTON—Feb. 27, 2008—G&A Partners, a fully-integrated Houston-based Human Resource (HR) and administrative services company, today released an HR advisory that provides updates that impact Texas Workers' Compensation laws.
The Texas Department of Insurance’s (TDI) new workers' compensation classification relativities and expected loss rates went into effect Jan. 1, 2008. As a result, many employers are now reporting higher Experience Modifier Rates (EMRs) on 2008 workers’ compensation renewals. Why, and what can you do to protect your company? The first step to addressing that question is to explain the term “Experience Modifier Rate.”
Experience Modifier Rates (EMRs) are metrics used by the insurance industry to measure a company’s loss performance resulting from workers’ compensation claims compared to its peers. The actual formula used to calculate EMRs is rather complex, but in simple terms, it is actual losses divided by expected losses. If your expected losses for a particular class of employee are $10,000 and your actual losses are $10,000, the formula (in simple terms) would be $10,000 (actual) divided by $10,000 (expected) which would equate to a 1.0 EMR. A 1.0 EMR represents an average loss rate. This rate is then factored into the calculation of your workers’ compensation premiums. Anything above a 1.0 will increase your workers’ compensation premiums, and anything below a 1.0 will reduce your overall workers’ compensation premiums.
An Expected Loss Rate (ELR) represents the "pure premium"—the premium needed to pay losses without any allowance for expenses and profit. As you saw, the ELR is a factor used to determine the EMR in the formula discussed above. With the TDI’s recent adjustments, ELRs decreased an average of nearly 22 percent. This means the losses you are expected to incur with a given class of employees has been reduced, which could result in a higher EMR even if your total payroll remains relativity unchanged and you experience no losses.
What effect can a higher EMR have on your business? For one, it could significantly increase the premiums you pay to your workers’ compensation carrier. Additionally, because many customers require their contractors to have an EMR of less than 1.0, a higher EMR could also jeopardize your ability to secure new business.
So, what can you do when you receive notice that your EMR is increasing? One option is to consider a co-employment relationship with a Professional Employer Organization (PEO). By entering into a co-employment relationship, your current EMR is locked in for a period of at least two years. Then, after the two-year period, you can choose to use your PEO’s EMR as your own. The only requirement to “lock in” your current modifier is that you sign up with a PEO before the effective date of the new EMR.
If you would need more information on EMRs or would like to understand more about how co-employment with a PEO can work for you, contact G&A Partners at 713-784-1181.