Your Experience Rating Assessment and What It Means for Your Company Budget
Fall is the time when many businesses throughout Canada prepare for their annual budgets. Employers in particular, often choose the fall because this is the time when they will receive their Experience Rating Assessment (ERA).
As it stands, your ERA will directly impact your insurance premiums. A poor rating can result in an increase of as much as 100% over time – but a good rating can – over time – lead to a reduction of as much as 50%.
Since this impact on your premiums (and thus your budget) is not insignificant, we encourage you to pay attention to your ERA and to fully understand its implications for the following year.
How are premiums are calculated?
As an employer, your insurance premiums are calculated using a combination of three factors:
- Your industry’s base premium rate – this will be a result of how your business is classified based on factors such as the products and/or services that you provide, the type of work performed, materials used, etc. Your direct competitors will have this same base rate as well.
- Your assessable payroll – this next part of your premium calculation is based on your overall assessable payroll which includes both employees and active shareholders. Each employee’s pay must be reported, up to the maximum assessable payroll.
- Your firm’s net experience rating – finally, your claim costs are taken into consideration. If your claims are higher than the average employer in your classification, you can expect an increase in your premium rates. However, if claim costs are lower, you can expect to benefit from savings in the upcoming year.
- How to calculate your premium:
Using the three factors mentioned above, you can calculate your premium using the following equation:
(Industry’s base premium rate +/- your experience rating) x your assessable payroll = Your total premiums
Why pay attention to your ERA?
Of the three factors that are considered in calculating your premiums, your experience rating is the one that you have the most control over.
After all, your industry is your industry and without significantly changing your business model, you will not be able to change your classification. As far as your assessable payroll goes, this is not easily modified either.
To stay competitive, there is an ideal number of employees that you will need to have – and to attract and retain the best talent, they need to be paid competitive wages.
Therefore, the best way to control the cost of premiums is to keep claims under control. Think of your ERA as being similar to your driving record and accident history for your car insurance. Claims cause premiums to increase – but careful drivers are able to obtain discounts.
How to improve your ERA:
The only way to improve your Experience Rating is to have fewer and lower claims. This can be done by improving processes so that employees are less likely to get hurt on the job and it can be done through claims management so that if an employee does get hurt, they receive more timely treatment and return to work sooner.
Both of these strategies tend to require the help of an expert.
If you are looking for a way to improve and assess your ERA – and in doing so reduce your insurance premiums – contact us at TeksMed today for a consultation.