Many of those Amazon “delivery service partners” we’re all seeing on the road nowadays are first-time business owners, most of whom are learning as they go as they build their fleets of vans and trucks.
They’re learning about hiring, marketing, equipment leasing and accounting. They’re also learning about insurance for their businesses, including how accidents and injuries can influence their workers’ compensation rates in surprising and altogether unpleasant ways.
Surprising because it typically takes two years before their carrier will adjust their so-called Experience Modification Rate to reflect their claims and loss record, and then, wham!, premiums go through the roof.
All of this can be jarring, of course, because we’re talking about the potential for sharp, sudden and upward spikes in premiums.
For a DSP with 30-40 drivers, the difference can easily amount to tens of thousands of additional premium expenses annually.
Workers’ comp rates in much of the U.S. have remained relatively stable, and have even dropped, over the past few years, but that hardly makes a difference when your “e-mod” turns ugly.
For the uninitiated, an e-mod is a multiplier and represents either a credit or debit that is applied to your premium. If your company’s loss experience is more costly on average than other companies’ loss experience in your industry, the result is a debit e-mod, or surcharge on premiums. If your company’s experience is less costly than the industry average, you will receive a credit e-mod, or discount, on your premium.
As I mentioned above, e-mods are based on claims costs over a two-year period.
The e-mod is determined by comparing actual losses to expected losses for the period based on the employer’s industry. In other words, logistics employees are compared only to other logistics employees, etc.
The formula adjusts the actual losses used so that frequency is given greater weight than the severity of an injury or illness. For example, six claims that occur over a two-year period totaling $20,000 have a greater impact against your e-mod than one claim in two years totaling $20,000. Again, both industry and business size are considered.
Claims with zero costs are not included in the experience modification calculation.
As Amazon will attest, it invests tens of millions of dollars in safety technology and training every year and is committed to doing more for its DSPs. That helps, of course, but accidents do happen.
To help ensure its DSPs are protected, Amazon requires all delivery service partners to maintain a range of insurance policies to cover everything from the vehicles they lease, to liability covering injuries to others, to workers’ compensation.
In fact, it has insurance companies lined up and ready to write coverage for all of its new DSPs. Better yet, the coverage is available at a discount, thanks to the volume of work Amazon does.
All of that is good. But a poor claims and loss record will ruin any business’s bottom line.
We all know there’s usually more than one way to get from Point A to B. In that same vein, there’s more than one way to structure any insurance policy.
Limits, terms, exclusions, add-ons and deductibles all influence the premiums we pay for insurance.
A cookie-cutter approach can work perfectly well for a company with a blank slate. But add a bit of experience, including perhaps some less-than-optimal moments, and things can head south quickly.
The wrong insurance policy or an inadequate policy or a policy that ends up costing more than you can really afford can all lead to disaster.
So, yes, there are times in life when something off the rack works just fine. But then there are those times when only a policy custom-made for you and your business’s circumstances makes any sense at all.
George Whitten is an insurance advisor in CCIG’s Commercial Lines department. Reach him at George.Whitten@thinkccig.com or at 720-330-7940.
CCIG is a Denver-area insurance, employee benefits and surety brokerage with clients nationwide. We do more than make sure you have the right policy. We help you manage your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.