With the recent changes to the California Insurance Marketplace, specifically the recent adjustments by the Workers Compensation Insurance Rating Bureau (“WCIRB”) to the way in which Experience Modification Factors (“X-Mod”) are calculated; many organizations were not prepared for the full impact of the changes. It can be especially burdensome for Nonprofits and Service Organizations that may have a higher susceptibility to loss than other organizations.
Further, Service and/or Mission Oriented Nonprofit Organizations have a unique exposure when it comes to injuries to workers (and volunteers) – they typically care too much.
Experience Modification Factor Calculation Change
The WCIRB recently adjusted its way of calculating an organization’s X-Mod by doing away with the fixed value for the Primary Threshold for Losses and replacing it with a formula that creates a sliding scale, Effective January 1, 2017. This sliding scale is intended to give a larger Primary Threshold to larger employers (i.e. Organizations with larger payrolls).
The impact we’ve seen has been a compounding of the impact/magnitude of losses on an organization’s X-Mod, which in turn equates to a similar impact to their Workers Compensation premium.
We recently witnessed one of our Nonprofit clients have an increase in their X-Mod of nearly 15% due almost entirely to the change in the calculation. We’ve been working diligently with this Nonprofit as they have approx. 50 employees and volunteers and this 15% increase in their X-Mod will result in an increase in Workers Compensation premium of no less than $18,000 for just this year alone.
If we take a quick moment and think of a Nonprofit, Service Organization, etc. that we are fond of; what is one of the key components of what makes that Nonprofit, Service Organization, etc. successful? It’s the PEOPLE. The people care, and many times they can care too much. Unfortunately, many times it’s the same people who care so much for the organization that can expose it to unnecessary financial hardship due to an injury.
Example: A Nonprofit is serves meals to members of the community in need. One caring employee sees that there is a pallet of food that needs to be put away. This employee takes it upon themselves to roll up his/her sleeves and “help out”. The pallet contains 40-pound boxes of frozen meat and it needs to be put in the walk-in freezer. The employee feeling the cold of the freezer decides to hurry, twists while lifting one of the last boxes and suffers a lower back injury.
In the example, the employee’s motives were altruistic, however depending on the severity of his/her injury the Nonprofit could be facing steep insurance premium implications. Sadly, this situation happens all too often amongst both employees and volunteers in Nonprofits and Service Organizations.
Many Nonprofit organizations depend, either in whole or in part, on the work and contribution of volunteers. Volunteers are a seemingly “No-Brainer” for Nonprofits to utilize as much as possible, and while this is true there are some potential costs that Directors, Board Members, etc. should be cognizant of.
1. Although Volunteers do not create a payroll expense, they do create a risk to insurance
2. Injuries sustained by Volunteers are treated the same as those to Employees
3. The Cost implications of Volunteer injuries are the same as those of Employees
4. X-Mod implications are compounded and/or Multiplied by Volunteer injuries
a. The X-Mod is calculated using both Payroll (reduces the factor) and Claim Cost (increases the factor) – Volunteers only contribute to the Claim Cost
To better insulate the Workers Compensation Cost Structure of any Nonprofit, Service Organization, or any other organization for that matter; training and accountability become critical. Although volunteer labor is commonly discounted as “not costing anything”, volunteers should be treated and trained the same or as similar as possible to regular employees.
The best Defense is ALWAYS a good offense, and the same is true in defending against claims. Training, guidance, and open dialogue as to why it is needed can provide incalculable benefits to the organization’s Workers Compensation Cost Structure.
If you would like further details on Workers Compensation Cost Structure Strategies, X-Mod Factors, or anything else, please contact GDI Insurance Agency, Inc.