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Underwriting

 What is the Special Fund Assessment?

The Special Fund Assessment is imposed by the Commonwealth of Kentucky to fund and pre-fund the liabilities of the special fund and to help finance the state workers’ compensation program (including the Kentucky Department of Workers’ Claims and portions of the Kentucky Department of Labor).

Insurance carriers are required by state statute to add the Special Fund assessment to the total premium charged to an employer for workers’ compensation coverage. The full amount of the assessment is transferred by the carrier to the Kentucky Workers’ Compensation Funding Commission on a quarterly basis.

 How can coal companies obtain their "Drug-Free Workplace" Certification to be eligible for a 5% premium credit?

A company that is a licensee of the Office of Mine Safety and Licensing (OMSL) can submit a written copy of their drug free work place program to OMSL for certification. To learn more about the certification
process, click here.

If the program is certified by OMSL, then the company must submit proof of the certification to KEMI in order to receive a 5% credit on their workers' compensation insurance premium. The program and certification must remain in place the entire policy term to earn the premium credit.

 How can a business obtain their "Drug-Free Workplace" Certification from the state of Kentucky to be eligible for a premium credit through KEMI?

Applications for certification of the drug-free workplace are currently being accepted by the state of Kentucky. To learn more about this certification, click here. If the program is certified by the state of Kentucky, then the business must submit proof of the certification to KEMI to receive a credit on their workers’ compensation premium. The program and certification must remain in place for the entire policy term to earn the premium credit.

 What is an ERM-14, and when does it apply?

An ERM-14 is a "Confidential Request for Ownership Information" form used by the National Council of Compensation Insurance (NCCI) to link insureds for Experience Modification purposes. The ERM-14 advises NCCI of any material/non-material changes such as changes in the insured's name, any ownership changes, mergers, etc. KEMI utilizes this form to evaluate all changes in business ownership. The ERM-14 must be completed regardless of premium size when the following changes occur:

  • Name change (show the before and after)
  • Combination of separate entities
  • Sale, transfer or conveyance of ownership interest
  • Merger or consolidation
  • Forming of a new entity/business
  • Sale, transfer or conveyance of an entity's physical assets to another entity which takes over operations
  • Voluntary or court mandated establishment of a trustee or receiver

The ERM-14 must be completed and signed by the insured before being sent to KEMI. In some cases, we will then forward the form to NCCI.

 How is workers’ compensation premium calculated?

While the calculation of workers’ compensation premium may appear complex, there are five basic elements used in the calculation.

Payroll
The first element in the calculation of workers’ compensation insurance premium is payroll. The total payroll by classification is the basis upon which the premium for a workers’ compensation insurance policy is determined. Policies are written with an estimated payroll, which are then subject to a premium audit at the conclusion of the policy term to determine the actual payroll amount. If the actual payroll amount was lower than the estimate, the policyholder will typically receive a refund of a portion of the premium paid. Conversely, if the actual payroll amount was higher than the estimate, the policyholder will typically owe an additional premium.

Classification Codes
Classification Codes comprise the second element of premium calculation. Classification codes are established by the National Council of Compensation Insurance (NCCI). The classification system is designed to group employees with similar exposures (risk of injury) into the same classification. There are approximately 600 classifications describing various operations. Each business is assigned a governing class that best encompasses the primary exposures faced by a company. It is important to note that classification codes are assigned based upon the business operations of the insured, and not the duties of individual employees within the business.

Base Rates
The payroll for each class is divided by $100 and then multiplied by the third element of the premium calculation, the base rate, to arrive at a “manual premium”. Rates are established based on the claims experience of employers across the Commonwealth. The total amount of payroll and incurred claims for each classification is reported to, and evaluated by, the National Council of Compensation Insurance (NCCI) to establish a loss cost for each classification. In an effort to account for the expenses necessary to provide workers’ compensation insurance coverage, a carrier’s expenses are then added to the loss cost through a Loss Cost Multiplier (LCM) to establish the base rate. We utilize data from NCCI’s Annual Loss Cost Filing in KEMI’s ratemaking process. However, as the largest provider of workers’ compensation insurance in Kentucky, KEMI also relies significantly upon our own loss data.

Experience Modification Factor
The “manual premium” is then multiplied by the fourth premium element, the experience modification factor, to arrive at a “modified premium”. The experience modification factor, or experience mod, is calculated by NCCI according to the terms of the Experience Rating Plan Manual. The plan is mandatory for all employers who qualify (in general, an average of $5,000 in premium for three years). The purpose of the experience rating plan is to compare actual claims experience for an individual employer to the amount of claims expected for the industry in which they operate. Typically, three full years of payroll and loss information is used in the calculation and produces a factor that is applied for one year.

The average experience mod for a given industry is a factor of 1.0. If the actual claims experience in the rating period is higher than the expected claims experience for the industry, the experience mod will be above 1.0. An experience mod above 1.0 suggests an employer is more likely to have claims than other employers within its industry. Conversely, if the actual claims experience for an individual employer was lower than the expected claims experience for the industry, the experience mod would be below 1.0. This factor would suggest an employer is less likely to have claims than other employers within its industry.

If a business does not qualify for experience rating, a factor of 1.0 is used in the premium calculation.

Rate Adjustment Factors
The fifth element of the premium calculation is the Scheduled Rate Adjustment Factor. Following the application of the premium elements previously discussed, there may be situations in which the resulting premium does not adequately reflect the exposure or experience of a specific policyholder. A Scheduled Rate Adjustment Factor is available for the purpose of adjusting the premium to reflect individual characteristics of the employer's operations that may not be reflected by its experience. In those scenarios, KEMI may apply a rate adjustment factor, in the form of a scheduled debit or credit that increase or decrease the policy premium.

Notes
There are additional items that are included in the premium calculation process such as Expense Constants, Increased Employers’ Liability Limits, Premium Discounts, and the Kentucky Special Fund Assessment. If you have questions regarding these items, or any other element of the premium calculation, please contact KEMI’s Underwriting Department.

 How is the class code determined?

Classification codes are established by the National Council of Compensation Insurance (NCCI). The classification system is designed to group employees with similar exposures (risk of injury) into the same classification. There are approximately 600 classifications describing various operations. Each business is assigned a governing class that best encompasses the primary exposures faced by a company. It is important to note that classification codes are assigned based upon the business operations of the insured, and not the duties of individual employees within the business. If you have questions concerning class codes, please contact KEMI’s Underwriting Department.

 When does the minimum premium apply, and does it include the expense constant?

The minimum premium applies whenever the actual premium plus the expense constant is less than the minimum premium for the selected classification code.

 What constitutes a complete submission?

  • Fully completed Acord 130 or online application via KEMI.com
  • Five years of currently valued loss runs from the previous carrier if prior coverage existed.
  • Last three completed payroll audits (if previously insured by a self-insured group fund)
  • Corporations and Limited Liability Companies must be active, and in good standing, with the Kentucky Secretary of State.
  • Federal identification (FEIN) numbers are required for businesses operating as Partnerships, Corporations and Limited Liability Companies.

For coal mine submissions, the following forms are also required (forms require Adobe Acrobat Reader and open in separate window, please have pop up blockers disabled):

In the event multiple submissions are received, the agency submitting the first complete submission will be recognized as the Agent of Record.

 What payroll do we use for included sole proprietors, partners or corporate officers?

Effective January 1, 2018, the payroll amount for an included sole proprietor, partner, or member of an LLC is $43,400. For included officers of a corporation, the minimum payroll is $44,200; the maximum payroll is $171,600. These amounts are based on NCCI Basic Manual Rules and are subject to change.

 What are KEMI's payment plan options?

Applicants may be eligible for a payment plan. If an applicant is interested in a payment plan, please contact KEMI's Underwriting staff.

 Are my employees covered while working in another state?

The KEMI Workers’ Compensation Policy provides coverage for Kentucky benefits as provided by the extraterritorial provisions of the Kentucky Workers’ Compensation Law, KRS 342.670.

 What is a Form 4 and when is it needed?

A Form 4 is a notice of rejection of the Workers' Compensation Act and is required by the Department of Workers’ Claims when an employee elects not to be covered by the workers' compensation statutes. The form must be completed by following the directions on the back of the form and the original must be forwarded to the Office of Workers' Claims. A Form 4 is necessary for officers of a corporation who wish to be excluded from the coverage provided by the Act. Sole proprietors and partners are automatically excluded from the Act. To obtain a Form 4, contact KEMI's Underwriting staff or the Office of Workers’ Claims at (502) 564-5550.

 When does USL&H coverage apply?

The United States Longshore and Harbor Workers Compensation Act provides federal workers' compensation benefits to employees (other than members of a boat’s crew) who work in maritime employment on or around the navigable waters of the US. The word maritime, in this context, includes employments that are not normally considered maritime, but would be if, at the time of injury, the work was being performed on US navigable waters. For example, an injury to a contractor doing work on a pier coould potentially apply under USL&H. At the same time, there are certain workers who are specifically excluded from the act regardless of where they work. They include clerical, security, restaurant and retail employees to name just a few.

 How are Experience Modifiers developed?

The experience modification factor, or experience mod, is calculated by NCCI according to the terms of the Experience Rating Plan Manual. The plan is mandatory for all employers who qualify (in general, an average of $5,000 in premium for three years). The purpose of the experience rating plan is to compare actual claims experience for an individual employer to the amount of claims expected for the industry in which they operate. Typically, three full years of payroll and loss information is used in the calculation and produces a factor that is applied for one year.

The average experience mod for a given industry is a factor of 1.0. If the actual claims experience in the rating period is higher than the expected claims experience for the industry, the experience mod will be above 1.0. An experience mod above 1.0 suggests an employer is more likely to have claims than other employers within its industry. Conversely, if the actual claims experience for an individual employer was lower than the expected claims experience for the industry, the experience mod would be below 1.0. This factor would suggest an employer is less likely to have claims than other employers within its industry.

If a business does not qualify for experience rating, a factor of 1.0 is used in the premium calculation.

 On what date does the policy become effective?

Only KEMI can bind coverage. Agents do not have authority
to bind coverage on behalf of KEMI.

The earliest possible effective date of coverage is the day following receipt of: properly completed applications, compliance with all underwriting requests/requirements, and the required premium.

1. If post office postmark -- the date following postmark.
2. If postage meter -- the date received by KEMI.
3. If carrier other than U.S. Mail -- the date received by KEMI.
4. If hand delivered by agent, applicant, or courier -- the date following date received by KEMI.
5. If submitting an online application -- the date after submission.

 What is needed to cancel a policy?

To request policy cancellation, submit one of the following:

  • Completed Acord Form 35 - Cancellation Request/Policy Release
  • Written notice which should include the effective date of cancellation and the reason for cancellation.  The notice must be signed by an officer/owner of the policyholder; or
  • Click here and complete the KEMI Policy Cancellation Request Form 

 Can a waiver of subrogation be added to a policy?

Waivers of subrogation are not allowed in Kentucky. It is against public policy in Kentucky for an owner or employee to require another employer to provide a waiver. Specific wording in the statute can be found in KRS 342.700 (3).

 
 

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