what happens to the experience mod?

what does an experience mod actually change?

NCCI’s ABCs of experience rating explain that experience rating affects the workers’ compensation premium, and that ownership changes can affect the rating. The mod is a factor on eligible premium. It is not the whole price. Payroll, classifications, the carrier’s rate, schedule credits, deductibles, and the audit still move the invoice. NCCI, ABCs of experience rating.

Ask for the current rating worksheet, not only the factor the seller quotes. The worksheet is what shows which entities, payroll, and losses are inside the number. A division, a parent’s consolidated factor, or a company insured through a PEO can be a different record from the operations you are buying. The shorter company-facing page is workers’ comp experience mods after an acquisition.

which ownership changes get reported on the ERM-14?

NCCI’s ERM-14, Request for Ownership Information, says the workers’ compensation policy requires the employer to report ownership changes, and the other changes listed on the form, to the insurance carrier in writing within 90 days. Incomplete information or a missing signature can delay processing. A narrative on the employer’s letterhead, signed by an owner, partner, member, or executive officer, can be used instead of the form. ERM-14 form. Instructions.

The form’s transaction types are the diligence list. Check every one that fits:

• Name and/or legal-entity change. The form says DBA name changes do not need to be reported.
• Sale, transfer, or conveyance of all or a portion of an entity’s ownership interest.
• Sale, transfer, or conveyance of physical assets to another entity that takes over the operations, where the seller keeps its legal name.
• Merger or consolidation.
• Formation of a new entity that acts as a successor to another entity.
• Formation of a new entity that is not a successor. The form says to report this only to determine combinability with another entity.
• An irrevocable trust or receiver.
• A request to determine whether two or more entities should be combined or separated based on ownership interest.

Some states do not use NCCI for this filing. New York’s NYCIRB Rule 3 uses the same 90-day idea and points employers to ERM-14 through the carrier, with the Rating Board reviewing the facts. North Carolina distinguishes intrastate and interstate risks. Confirm the bureau, the form, and the deadline for the states where people actually work. NYCIRB Rule 3.

when does the mod combine, and when does it stay unchanged?

People use “no change” to mean the loss history is not wiped clean. That is different from combination, and different again from exclusion. The rating organization makes the call. Do not book a blended factor before it does.

NYCIRB’s exclusion test is specific, and it is a New York rule. The Rating Board excludes experience only if it confirms all of the following: a material ownership change (the owners after the change had no interest before, or the collective ownership was less than one-third before the change or less than one-half after it), a change in operations sufficient to reclassify the governing classification, and a change in the process and hazard of the operations. Missing one of those keeps the experience in the rating. NYCIRB also says experience is not otherwise excluded for employee leasing companies and temporary employment agencies, except as another part of that plan allows. NYCIRB Rule 3.

If the target is in a PEO, ask which mod you were handed. On NCCI’s multiple coordinated policy model, the client has its own mod. On the master policy model, one mod applies to the PEO policy, and some states still require client-level experience to be maintained. When the client leaves, NCCI’s data-reporting materials call for a split of that client’s payroll and claims so the individual experience can be rated. Multiple coordinated policies. Master policy. The exit steps sit in the operating partner’s 100-day plan.

how can the mod change bid eligibility?

NCCI ties the mod to premium. Bid eligibility is a separate question, and it lives in the contract documents. Some private owners and general contractors still write a maximum experience modifier into a bid invitation. If a combination moves the factor across that line, the contractor can lose the right to bid even when the work itself did not change. Read the bid form before you treat a combined mod as a cost-only item.

Public work is not the same in every state. Texas Government Code section 2252.910 says a governmental entity’s construction solicitation may not require a specified experience modifier in order to submit a response, an offer may not require one in order to accept, and the contract may not require the contractor to have one. A term that violates that section is voidable as against public policy. The section covers governmental construction contracts and public works as it defines them. It does not, by itself, rewrite a private bid form in another state. Texas Government Code chapter 2252.

Ask counsel which state’s rule applies to the jobs the company actually bids. Then ask the broker for the mod path under both outcomes, combination and no change, before the investment memo uses one number.

what should diligence ask before you sign?

1. The current experience-rating worksheet, its effective date, and whether the employer is experience-rated at all.
2. Legal names, FEINs, and ownership percentages before and after closing, for every entity that will share majority ownership with the target.
3. Which employees and operations move, and in which states they work, so you know if the risk is intrastate or interstate.
4. Whether any entity is in a PEO, and whether the worksheet is the client’s mod or the PEO’s.
5. Loss runs that match the worksheet, currently valued.
6. Every bid form or customer contract that mentions an experience modifier.
7. Who will sign the ERM-14, or the equivalent bureau form, and the date it will be sent. The 90 days run from the change, not from the first board meeting after close.

Put two cases in the model until the bureau answers: experience combined, and experience left unchanged. Label any third case, exclusion, as unconfirmed unless the rating organization has said the tests are met. An add-on that will share ownership with a platform belongs in the same request. Add-on insurance integration.

what does an illustrative ownership change look like?

Coverage and rating are subject to the policy, the adopted rating plan, and the bureau’s determination. This example is not a mod calculation.

what belongs on the ownership-reporting checklist?