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A few insider tips used by workers' compensation cost control consultants can help employers cut the cost of their insurance. Following are proven methods to reduce the cost of this vital insurance to the absolute minimum.

Experience Modification Rate

Most contractors accept the experience modification rate (EMR) as an absolute number, with little ability to improve. That's a mistake that can cost large sums of money and put the contractor at a competitive disadvantage when bidding for work.

A company can improve its EMR by obtaining a copy of its Experience Rating Worksheet, which contains the payrolls, claims and other factors that make up the EMR. Companies should have received a copy of the worksheet in the mail, but it is available from the insurance agent or broker, direct from the insurer or by ordering a copy from the National Council on Compensation Insurance (NCCI).

With that worksheet in hand, along with an up-to-date loss run, a company should review the following components.

  • Ensure all claims charged to the EMR under the column labelled “Act Inc Losses” belong to the firm. Sometimes, firms are accidentally charged for claims that belong to someone else, so it is a good idea to confirm that your EMR only contains your company’s claims.
  • Review the loss valuation date and make certain every claim possible is closed before that date. Generally, that date is six months before the EMR becomes effective. Otherwise, the EMR might include an open claim reserve that was settled. Remember, companies can request the insurer’s claims adjuster to close claims before the loss valuation date.
  • Confirm the insurer has correctly determined Loss Adjustment Expenses and omitted them from Incurred Losses. These are the insurer’s expenses and should not be charged to a company’s EMR.
  • Evaluate the column labelled Payroll and confirm correct amounts are used. Also, look for payroll for uninsured subcontractors charged on the premium audits. Payroll charged to these uninsured subcontractors should be included in the EMR and can help lower the rate.


The Construction Classification Premium Adjustment Program (CCPAP) is a potentially large credit available to contractors in 15 states: Alaska, Connecticut, Florida, Hawaii, Illinois, Maryland, Massachusetts, Missouri, Montana, Nebraska, New York, New Mexico, Oklahoma, Oregon and Virginia. All 15 states require the policy to contain at least one construction-related classification code and may have other requirements. Three states require that the experience modifier be no greater than 1.

CCPAP is an often overlooked credit that is available to contractors that pay wages greater than their state’s average wage. Because workers' compensation premium is, at its simplest, a rate times payroll, the higher the payroll, the higher the premium. The CCPAP lowers the premium resulting from above average pay. Unfortunately, details of the credit are not widely known among contractors and even among insurance professionals. Depending on the state, the credit begins with an average hourly wage of about $25 to $30.

If a contractor has payroll in one of the 15 participating states, its policy should include NCCI Form NC-5000A. That form asks for gross payroll for the third calendar quarter of the year that precedes the policy’s effective date. NC-5000A has three columns. In the first, a contractor provides a class code or description of the work (electrical, supervisors, clerical, etc.). In the second, it provides gross wages (after adjustments) for each classification of work. In the third, it provides the corresponding number of hours worked. In most states, contractors that are a new business with no payroll in the previous year’s third quarter use payroll and hours worked from the first complete quarter after the policy’s effective date.


Next, mail the completed form to either the state workers' compensation rating bureau or the NCCI. They will calculate the credit and forward it to the firm's insurer. The insurer will endorse the policy with the credit and carry it over to the final audit. In most states, the credit ranges from 5 percent to 25 percent of premium, depending on company-wide average wage. If a contractor has operations in more than one state that has adopted the CCPAP, it will complete a separate application for each state. When the policy is audited after it expires, the insurer has the right to verify the payroll and hours shown on NC-5000A.

This credit is a useful tool for high-wage contractors to save a large portion of their premium. It is also a great way gain an advantage over the competition. It is available for a reason, and contractors should take advantage of it.

Work Classifications

Contractors may allocate the payrolls of construction employees to different classifications of work, provided that the contractor keeps contemporaneous records that support the payroll allocation. They should preemptively discuss how to set up payroll records with the insurer’s audit department so wages are allocated to all the classifications to which they are entitled. Contractors should have the online SCOPES Manual from the NCCI available. It is a valuable tool that describes all classifications available and when they may and may not be used.

Sometimes the classification with the lowest rate does not result in the lowest premium. Because classifications are a component of the EMR and the CCPAP, seeking the lowest class rate might be more than offset by a higher EMR and a lower CCPAP—and it might generate a higher premium. Especially in the construction industry, a higher EMR might be a greater handicap than a lower premium is beneficial. Care should be taken and a knowledgeable expert should be consulted when determining the best available workers' compensation classifications.

Another premium saving suggestion is to prepare a pre-audit before the annual audit. When the insurer completes its annual premium audit, it works from the records provided. Contractors can help make the auditor's job more accurate by completing their own audit. Make certain the prepared payrolls take into account all the credits, limitations and deductions available. Many auditors will accept contractors’ prepared work as their own.

Finally, when the audit is complete, request a copy of the auditor’s worksheets, review the worksheets with the auditor and discuss how employees were classified. Then, when the final invoice arrives, be sure to compare that invoice to those worksheets.

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