Temporary staffing firms can struggle to keep their workers’ compensation premiums under control, especially if the firm’s risk management strategies need improvement. Part of the process of getting control of premiums is developing an understanding of how insurance companies calculate them. Each factor in the calculation presents an opportunity for businesses to bring their costs down and make their workers’ compensation programs into a better investment.
Every workers’ compensation package begins with a base premium. Insurers calculate their client’s base premium using several factors. The size of the business is a starting point. Then the insurer will examine each job at the business, categorizing the position of each employee into an industry classification. The industry classification of an employee determines the overall risk that the position represents to the insurer. For example, someone who works a desk job, like a receptionist, will have a different classification than someone who performs work that involves heavy lifting or exposes the employee to dangerous equipment. Each classification has its own premium rate per dollar spent on payroll.
Base premiums tend to have relatively little flexibility in them, due to their basis in general principles and predetermined classification codes. A staffing firm may be able to shop around for an insurer that offers the lowest base premium rates. But in general, the base premium will be determined by the kind of work that the staffing firm’s employees do.
Where flexibility comes into play is when insurers apply an experience modifier to the insured business’s base rate. The experience modifier, sometimes shortened to EMR, is determined by a third-party rating bureau. It takes into account a business’s past performance, typically examining losses over the previous three years. The calculation of EMR examines both the frequency and severity of losses, with greater weight given to frequency. A firm that has had many small claims over the previous three years likely will see higher premiums than one that has had only one or two claims, even though those claims were for significant events.
The EMR offers a key insight for businesses that want to reduce their workers’ compensation premium costs. By taking control of risks, implementing a safety program, and keeping tabs on client safety practices, a staffing firm can reduce the number of claims under its policy, bring down its EMR and, by extension, its premiums.
Helping clients manage risk and reduce their costs is a big part of what Gunnin Insurance does. We are dedicated to serving the insurance needs of the temporary staffing industry. Our commitment is to enhance the performance and financial effectiveness of our clients’ workers’ compensation programs through comprehensive and attentive service. Contact Gunnin today to learn how we can serve your firm.