For some insurance agents, combining separate locations on one policy to form a common Experience Mod is common practice. This practice, however, can have serious problems and can cost you, the business owner, a considerable amount of money. In addition to being confusing, it can also be unreasonable, especially if one location has higher risk factors that give it completely different California workers’ compensation class codes than the other location.
Understanding how the experience modification is calculated and its effect on your premium is essential to understanding why combining separate locations may not be in your best interest. Experience Mod is calculated using workers’ compensation, payroll and claims class codes over the course of 3 years for each location listed on a separate FEIN. The more or fewer claims made regarding payroll and workers comp codes, the higher or lower your Experience Mod will be for that location. The lower your Experience Mod, the lower your bonus.
The differences in potential hazards for each location are reflected in the California workers’ compensation class codes. When combining locations where one location has a higher danger potential, your Experience Mod will reflect all locations if they are combined under different FEINs. You could end up paying a higher premium because of it.
Agents use combinability rules to consolidate locations. The rules assume that if a landlord is security conscious in one location, you are likely to be security conscious in another. However, an owner can have serious security risks in one location that are not present in the other, creating an unbalanced Experience Mod that can be dramatically affected by workers’ compensation class codes. Combinability rules, however, are not an acceptable practice for a workers’ compensation policy.
An owner had several different locations for gas stations, convenience stores, and car washes that were under one FEIN. The locations were listed as sub-companies under a parent company and were not separated into different FEINs by the agent. One of the places had a very large claim. The result was a higher XP Mod for all locations and the customer bonus doubled from $150,000 for all locations to $300,000.
By separating these locations and giving each business its own FEIN, the experience mod for the other locations was drastically reduced, as was the customer bonus. Instead of paying $300,000 a year, her premium was reduced to $185,000. In the end, the client saved over $100,000 per year and recovered $345,000 in overpaid premiums over the previous 3 years. As you can see, combining locations is not necessarily the best practice for a workers’ compensation policy.
Is your business spread over several locations? Do you own multiple types of businesses with different workers’ compensation codes? If they are bundled into your workers’ compensation policy under an FEIN, you could be paying too much in your premium. To learn more about how entity separation can save you money, visit http://bizinsquotes.com and fill out the free quote form.