Workers’ Compensation

Workers’ compensation insurance is required by most states. Protection is provided for employees who are injured in the conduct of their work. Workers are covered at the bank, during customer meetings, while driving to business appointments, and at conventions and conferences. Employees are eligible for work comp benefits regardless of who caused the injury and regardless of the stupidity of the action that caused the injury.

Your bank pays a premium based on your payroll and past loss experience. The insurance company handles any claims that occur. The detail of the premium calculation is where there are opportunities for mistakes and savings.

Importance of Correct Classification

Review your policy classifications for accuracy. Work with your agent to be sure that the classes and rates you have are correct for your operation. Ask your agent for a copy of the Scopes® description of your classifications. Most bank employees will be classified as “clerical.” Maintenance and courier drivers will be separately rated. There also may be a separate sales code for commercial lenders and other marketing people who are on the road.


Common Workers’ Compensation Employment Classifications for Banks

Clerical: tellers, receptionists, secretaries, loan processors, and office workers

Sales: commercial lenders who regularly visit customers

Drivers: couriers and drivers

Building Operations By Owner or Real Estate Company: Professional employees

Building Operations By Owner or Real Estate Company: Other employees, such as janitors


Understand the Definition of Payroll

Make sure your insurer isn’t charging you for payroll that should not be included. For example, the extra wages you pay for overtime work should be removed. Your executive officers’ payrolls may be eligible for capping at a maximum wage. Talk with your insurance advisor.

Get Copies of Your Audit Worksheets

Ask your insurer to provide you with a copy of the audit worksheet prepared for your most recently expired policy. This document provides the details of how the insurance company determined your final premium. It lists employees, classifications, and payrolls. Look for errors such as the inclusion of overtime and incorrect classification of employees.

Consider Deductibles

Consider using a substantial deductible to control your premiums. Work with your agent to determine the effect that deductibles will have on your costs and your future experience modification.

Experience Modification

Most banks have, as part of the premium calculation, a factor that is a ratio of expected losses to actual losses. This factor is known as an experience modification. Ask your agent to work with you to review your experience modification worksheet for accuracy. Check the payrolls and losses that are a part of the calculation.

A modification of 1.0 indicates that your losses are average. An experience modification of 1.2 means that your losses are higher than average. A modification of .89 is reflective of loss experience better than average. Your experience modification factor is multiplied by your gross premium, so a 1.2 mod increases your costs by 20%.

Many banks seem to be satisfied with an experience modification that hovers around 1.0. Some commentators have said that a mod at this level is the equivalent of a school grade of C. Most would agree that this is nothing to write home about.

To objectively judge your modification, determine your “perfect” mod — the mod you would carry if you experienced no losses. (Your agent should be able to provide you with info on your perfect mod. If not, call me and let’s find you a new insurance agent.) The difference between your experience modification and your perfect modification indicates the part of the modification to control.

For example, if your mod is .98 and you determine that your perfect mod is .74, you then know that .24 of your experience mod is your fault. No losses would mean a reduction in your mod of the .24. You can also use this information to determine what your losses cost you in additional premiums.

Controlling your experience modification is a function of your efforts to control your loss frequency and the severity of losses you have. It also is a function of claims management. (See chapter twenty-nine.)


Your Perfect Mod

Your workers’ compensation experience modification is the ratio of your expected losses to your actual losses. Your perfect mod is the experience modification you would have if there were no losses on your record.

Figuring out the difference between your current experience mod and the perfect mod tells you the impact your claims have on your premium. Contact me for a report showing your mod, your perfect mod, and the impact that loss severity and frequency has on your claims:


Employers’ Liability

This is the second (often ignored) part of the workers’ compensation insurance policy. It covers the employer from bodily injury liability arising out of the employment relationship — but not injuries to employees.

In my career, I have seen two claims in employers’ liability. Neither was from banking exposures, but they serve to illustrate the coverage.

The first was a construction risk where a wife brought lunch to her husband at a job site. On arrival at the site, she witnessed her husband falling to his death. She claimed emotional distress at seeing the accident.

The second claim was in a boat-building operation where a father’s work clothing was contaminated with fiberglass particles. The clothing was washed in the family laundry, where the children picked up the fibers and got sick.

In the banking world, claims could come from a spouse’s claim of loss of companionship or services after an employee’s injury.


Limits of Coverage for Employers’ Liability

Typical limits of coverage:

Each accident: $100K

Disease: policy limit $500K

Disease: each employee $100K

Some umbrella insurers require higher limits of coverage:

Each accident: $500K

Disease: policy limit $500K

Disease: each employee $500K

Some specialty programs and self-insured workers’ compensation plans will have available limits of $1 million.