Got workers’ comp questions? We’ve got answers. It’s hard to keep track of all the Workers’ Compensation acronyms, definitions, best practices and more! So we’re sharing a few frequently asked questions we recently received from our Vigilant Manufacturing Retro members.
What is Standard Premium; is it the same premium I pay to L&I?
Standard premium is the amount that Labor & Industries uses to calculate retro refunds and it is often lower than what a company actually pays to L&I. The premium that a company pays to L&I is a combination of four different rates: Accident Fund, Medical Aid Fund, Stay at Work Fund and Supplemental Pension Fund. The Accident Fund and Medical Aid Fund make up the vast majority of a company’s premium and are the only two rates that are counted toward the standard premium amount. The total premium a company pays L&I each quarter is often referred to as “Guaranteed Cost” or “Composite” premium.
How do we compare with other companies that are similar to us?
One of the best ways to measure performance against peers is through the Experience Modification Factor (EMF). This is a multiplier on a company’s insurance rates that determines if it pays more or less than the average company. So let’s say, a company’s primarily reporting worker hours in the 3405 risk class code for “Precision Machine Parts Manufacturing”. In 2021 this code costs $0.7323 per worker hour. Effectively, a company’s experience factor is then multiplied by that “base” rate to determine its “effective” rate (what it actually pays). Statewide an EMF of 1.0000 is considered par though the actual state average is closer to 0.9000. So if a company’s EMF is high, above 1, it means the company is paying more for its workers’ compensation coverage than the average employer in Washington. This isn’t a straightforward multiplication problem though, only the Accident Fund, Medical Aid Fund and Stay and Work Fund rates are multiplied by a company’s EMF. The Supplemental Pension Fund rate is the same statewide and is unaffected by EMF.
What is loss ratio?
For retro purposes a loss ratio is a measure of the cost of a company’s claims versus the amount of standard premium that it paid to L&I. It’s simply the developed cost of claims divided by standard premium in a given plan year. Lower loss ratios means L&I has more unused premium to return via retro refunds.
What is a compensable claim? How do I prevent injuries in the first place? In general what can we be focusing on or doing to save money? (see this article). If you have any of these questions or others our workers’ compensation team is just a phone call away. We’re here to support Washington manufacturing and agricultural companies in their effort to keep workers safe and lower workers’ comp costs.