For some insurance agents, combining separate locations into one policy to form a common Experience Mod is common practice. This practice, however, can have serious problems and can cost you, as the business owner, a significant amount of money. Besides causing confusion, it may 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 Mod is calculated and its affect on your premium is essential to understanding why combining separate locations may not be in your best interest. The Experience Mod is calculated using work comp class codes, payroll, and claims over the course of 3 years for each location listed under a separate FEIN. The more or less claims made in relations to the payroll and workers comp codes, the higher or lower your Experience Mod will be for that location. The lower your Experience Mod is, the lower your premium is.
The differences in the potential hazards for each location are reflected in the California workers compensation class codes. When combining locations in which one location has a higher hazard potential, your Experience Mod will reflect all locations if they are combined under different FEIN. You could end up paying a higher premium because of it.
Agents use rules of combinability to consolidates locations. The rules assume that if an owner is safety-conscious at one location, you will likely be safety-conscious at the other. However, an owner can have serious safety hazards at one location that are not present at the other, creating an unbalanced Experience Mod that may be dramatically affected by the work comp class codes. The rules of combinability, however, are not acceptable practice for a workers compensation policy.
One owner had several different locations for gas stations, convenience stores, and car washes that were all under one FEIN. The locations were listed as sub companies under one main company, and the agent did not separate them into different FEIN. One of the locations had a very large claim. The result was a higher Experience Mod for all the locations and the client's premium doubled from $ 150,000 for all the locations to $ 300,000.
By separating these locations, and giving each business its own FEIN, the Experience Mod for the other locations went down dramatically, as did the client's premium. Instead of paying $ 300,000 a year, his premium dropped to $ 185,000. In the end, the client saved over $ 100,000 a year and recouped $ 345,000 in overpaid premiums during the prior 3 years. As you can see, combining locations is not necessarily the best practice for a workers compensation policy.
Is your business spread over multiple locations? Do you own multiple types of businesses with varying workers comp codes? If they are combined on your workers comp policy under one FEIN, you could be paying too much on your premium. For more information on how separating entities can save you money, visit http://bizinsquotes.com and fill out the Free Quotes Form