 To: ClientsFrom: Sam CellySub: Workers Compensation, Experience-Modifier, and How Litigation is Adding to Our ClaimsDate: September 18, 2025 Introduction. Dealerships Workers Compensation (WC) insurance costs have increased effective September 1, 2025 with the California Department of Insurance approving a rate increase of about 9%. Background. Workers Compensation (WC) insurance is mandatory in the United States and many other countries. It ensures employees receive medical treatment and disability benefits for workplace injuries, while protecting employers by providing immunity from employee lawsuits for alleged negligence. WC premiums are paid entirely by employers and represent a significant, manageable business expense. Steady over nearly a decade, rate increases are attributed to rising medical and claims costs, more cumulative trauma claims, and increased claim adjustment expenses. Cost Containment. WC premiums are calculated using a base rate that reflects job duties, payroll size, and the number of employees. This base rate is then adjusted by an experience modifier (X-Mod) tied directly to the frequency and severity of workplace injuries. Losses are calculated from claims paid by the insurance company, so every claim impacts your premium for multiple years. Preventing injuries is the most effective cost-control strategy. Being Proactive. Reducing both injuries and claims, starts with a proactive approach to safety and claims management. Employers should:Form and maintain an active Safety CommitteeDesignate an approved medical clinicEncourage open communicationDocument thoroughly Accident Investigation, Employee Statement of Injury, Employee Counseling, Declination of treatment by employeeVerify coverage for contractors working on your premises and others Post-Claim. Promptly report all claims to the carrier even declinations with signed forms. In California, the 90-day rule for workers’ compensation claims means that if the insurance carrier fails to accept or deny a claim within 90 days of it being submitted to the employer, the claim is presumed accepted.Ensure supervisors investigate each claim and notify your carrier if legitimacy is in question. If a third party is at fault, pursue subrogation. Offer modified duty, when possible, to reduce costs, and work closely with your claims adjuster by providing requested information quickly for efficient claim handling. Managing Your Claims. Stay actively engaged in the claims process ask for updates frequently. Open claims with high reserves are a major reason X-Mods increase. Remember that legal expenses do not affect your X-Mod, but illegitimate claims should always be challenged. Sometimes settling quickly is more cost-effective than allowing claims to linger. For litigated cases, voluntary resignations may be part of the settlement strategy. Ultimately, the best claim is one that is prevented, and the next best is one that is promptly closed. Calculating Costs. In California, payroll data and incurred losses over a four-year period are used to calculate an employer s workers compensation premium. For example, the 2025 X-Mod basis for policy renewal on January 1, 2025 are WC claims from 2021, 2022, and 2023. While 2024, most recent year s claims are excluded from the X-Mod calculation, it remains critical for underwriting. Even with a favorable or credit X-Mod, a dealership with multiple recent claims may be viewed by carriers as having a weak safety culture, leading to fewer quotes and/or higher premiums. Checklist before submitting your data.Are payroll data correct?Are X-Mods calculated correctly? Per insurance brokers 75% of all X-Mods are incorrect.Are subrograted & joint claims included or missing? Cost Savings. Two employers with identical payrolls (Table A) show how injury rates drive costs. Employer II had four more injuries than Employer I, resulting in $282,500 in losses versus $45,004. This difference raised Employer II s annual premium by $174,540 in 2015. Because claims affect premiums for three years, preventing injuries saves money while also improving morale, productivity, and competitiveness.Table A: Payroll Data (both Employer I & II)EmployeeAnnual PayrollNo. of EmployeesPayroll Year 1Payroll Year 2Payroll Year 3Clerical/Office Staff (code 8810)$ 50,000.0020$ 1,000,000.00$ 1,000,000.00$ 1,000,000.00Sales Staff(Code 8748)$ 80,000.0020$ 1,600,000.00$ 1,600,000.00$1,600,000.00Technicians(Code 8391)$ 80,000.0023$ 1,840,000.00$ 1,840,000.00$1,840,000.00Service Writers, Parts Counter, Parts and Service Managers(Code 8391B)$ 85,700.007$ 600,000.00$ 600,000.00$600,000.000Total 70$ 5,040,000.00$ 5,040,000.00$5,040,000.00Table B: Injury Data & Losses Paid per Injury Employer IEmployer IIYearClaim #Type of InjuryIncurred LossesType of InjuryIncurred LossesYear 11Cut Finger$ 1Back Injury$ 50,000.00Year 12Cut Finger$ 1Back Injury$ 7,500.00Year 13Broken Finger$ 10,000.00Broken Finger$ 10,000.00Year 14Cut Finger$ 1Elbow Sprain$ 5,000.00Year 15Head Injury$ 5,000.00Head Injury$ 5,000.00Year 26Arm Rash$ 1Fatality*$ 175,000.00Year 37Back Injury/Cumulative Trauma$ 25,000.00Back Injury/Cumulative Trauma$ 25,000.00Year 38Arm Rash$ 5,000.00Arm Rash$ 5,000.00Total $ 45,004.00 $ 282,500.00*Death benefits are statutorily limited in certain states. For California, death benefits are capped at $320,000. Only $175,000 is used in this sample calculation. Table C: Estimated Premium Costs Premium Based on Employee Count & PayrollExperience ModificationTotal 2025 Premiums(before credits) Employer I$ 264,500.000.85$ 224,825.00Employer II$ 264,500.001.51$ 399,395.00DISCLAIMER: Employers must consult with their WC Insurance brokers for a better understanding of their WC premiums and safety consultants for matters related to safety. The contents of this newsletter are for informational purposes only and not to be considered as legal advice. The premium numbers are for discussion purposes and actual numbers for X-Mod and premium calculations may vary on a case-by-case basis. The article was authored by Sam Celly of Celly Services, Inc. who has been helping automobile dealers comply with EPA & OSHA regulations since 1987. Sam received his BE (1984) and MS (1986) in Chemical Engineering followed by a J.D. from Southwestern University School of Law (1997). Our newsletters can be accessed at www.epaoshablog.com. Your comments/questions are always welcome. Please send them to sam@cellyservices.com. |
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