Why combining locations in a single FEIN is bad for your worker’s compensation premium
For some insurance agents, combining separate locations in a policy to form a common experience module is common practice. However, this practice can have serious problems and can cost you, as the business owner, a considerable amount of money. In addition to causing confusion, 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 Mod is calculated and its effect on your premium is essential to understanding why combining separate locations may not be the best for you. The Experience Mod is calculated using workers’ compensation, payroll, and claims class codes over the course of 3 years for each location listed in a separate FEIN. The more claims that are made in relation to payroll and workers’ compensation codes, the higher or lower your Experience Mod will be for that location. The lower your Experience Mod, the lower your premium.
The differences in potential hazards for each location are reflected in California workers’ compensation class codes. When combining locations where a location has a higher potential risk, your Experience Mod will reflect all locations if they are combined under different FEINs. You could end up paying a higher premium for it.
Agents use merge rules to consolidate locations. The rules assume that if an owner is safety conscious in one location, you are likely to be safety conscious in the other. However, a homeowner can have serious safety hazards 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. However, the rules of combinance are not an 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 in a parent company and the agent did not separate them into different FEINs. One of the locations had a very large claim. The result was a higher Experience Mod for all locations and the customer premium doubled from $ 150,000 for all locations to $ 300,000.
By separating these locations and giving each company its own FEIN, the Experience Mod for the other locations was drastically reduced, as was the customer’s premium. Instead of paying $ 300,000 a year, his premium was lowered to $ 185,000. In the end, the client saved more than $ 100,000 per year and recovered $ 345,000 in overpaid premiums during 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 multiple locations? Do you have multiple types of businesses with different workers’ compensation codes? If they are combined into your workers’ compensation policy under one FEIN, you could be paying too much on your premium. To learn more about how entity separation can save you money, visit http://bizinsquotes.com and fill out the free quotes form