• Top Ten Insurance Saving Tips for HVACR Contractors

    June 1, 2006
    Recordkeeping is king! The rules governing HVACR contractors have changed effective 12/1/05, and this may impact your business. With the regulations varying
    1. Recordkeeping is king! The rules governing HVACR contractors have changed effective 12/1/05, and this may impact your business. With the regulations varying from state to state, you may no longer be able to use the interchange of labor rule to divide your HVACR payrolls. Companies now may be subject to code 5537. Since every company and industry is subject to a governing class code, it is critical to understand that the function of the business, not the individual functions of employees, determines the governing class. Dividing payroll may be appropriate if the company is a specialist contractor performing a portion of an HVACR contract. Understanding your business classification and keeping accurate records are vital to preventing overcharges for workers' compensation premiums.

    2. Workers' compensation insurance premiums are determined directly or indirectly by payroll, state regulations, classification of employee payroll, loss experience and safety programs. However, most agents and companies have not counseled their clients on the Experience Rating Adjustment rule most states put into effect in the late 1990s. This rule reduces the value of some claims by 70 percent, which can lower a $1,000 claim to $300. Saving money means learning and taking advantage of all of the available rules and regulations.

    3. Did you know that you might not owe any of the additional workers' compensation dollars billed to you if your experience modification increases during your policy period? Consult your agent to determine if you owe these premium dollars from policy inception, on a prorated basis or not at all.

    4. Identify your minimum mod. What's a mod? An experience mod is a numerical representation of a company's history of workplace injuries over a three-year period. A high experience mod number indicates a company has had more workplace injuries than were expected for the work they perform and the size of their work- force. A mod of 1 indicates they had injuries at a rate expected for their work and size, and an experience mod less than 1 indicates fewer injuries than were expected for their size. It is important to understand the potential savings if your company were loss-free or close to it in order to make appropriate spending decisions. The experience modification factor is either a credit or debit on premium, based on a three-year calculation of losses and payrolls. If losses are above average, the experience modification will be greater than 1.00. Conversely, the experience modification will be below 1.00 if losses fall below the average. An experience modification ratio of 1.00 is the industry average. Have your insurance agent perform an experience mod analysis to determine workers' compensation expenses for the upcoming year — before it is time to bid next year's business.

    5. Do not let an auditor control the audit process. Remember, an auditor works for the insurance carrier, not you, and his or her job is to maximize the carrier's premium dollars. Preparing the audit package before the auditor arrives ensures information sent to your state's rate bureau is correct and protects you from costly overcharges.

    6. A knowledgeable insurance agent can save your company time and money. Selecting an insurance agent who has expertise in your industry and understands workers' compensation rules and regulations can help a company save money, without changing its business practices. Everyone has figured out overtime, but did you know severance, military leave and some types of safety bonuses are excludable?

    7. Know the right time of year to reduce reserves on open claims. A company's valuation date is the day an insurance carrier reports your company's loss history to send to the rating bureau. Good or bad, open or closed, this is the information used to generate your experience mod for the upcoming year. Reducing open claims before the valuation date can effectively reduce a company's experience mod for the upcoming year and directly lower insurance costs.

    8. Avoid placing employees on “no work” status. There are legitimate, albeit limited, reasons an employee cannot return to work after an injury. Unless an employee is in the hospital, confined to bed rest, contagious or mentally incompetent, the employee can return to work for modified duty. By reducing that lost time, you will lower your insurance costs.

    9. Hire right! Many workers' compensation claims begin at the date of hire. Employers should make every effort to determine if the people they hire can do the job. Do new hires understand the physical demands of the job? Have you implemented a post-offer, pre-hire testing program to determine whether new hires meet minimum job requirements? The wrong time to find out someone cannot lift 50 pounds is when an injury occurs the first day on the job. Avoid hiring the “wrong” employees, and you will reduce workers' compensation costs and probably increase productivity.

    10. A change in the expiration date of workers' compensation policies may hurt future workers' compensation costs. Before considering any change in the effective dates of your policy, ask your agent to analyze how this change will affect your insurance costs over the next few years. Changing the date will determine how long your current losses remain in your experience rating. This can affect your mod and, consequently, cost more in premiums over several years.

    Craig Dedrick is assistant vice president of Carpenter, Cammack & Associates. Craig has focused his career on bringing workers' compensation solutions to a variety of industry groups, including manufacturers, wholesalers and contractors. He is a graduate of the Institute of Workers' Compensation Advisors, a registered workers' compensations specialist and a construction risk and insurance specialist. Contact him at 704/602-3815 or [email protected].