Insurance as you grow

State law sets when you need workers' compensation, and the rules vary. Once your business is big enough to be rated, you also get an experience modification factor, or mod. It compares your company's actual losses with the losses expected for businesses in your same classification. A mod of 1.00 is average. Below 1.00 is a credit that lowers your premium; above 1.00 is a debit that raises it.

The mod usually uses three years of payroll and loss data. It skips the current policy year and the one before it, because those claims aren't fully valued yet, so an injury this year shows up in your mod a year or two later and can stay there for three years. The rating plan gives more weight to how often injuries happen than to how big they are, so several small claims can push your mod up more than one larger claim with the same total.

Example (made-up numbers): Ray's workers' comp premium before the mod is $40,000. At a 0.85 mod he pays $40,000 × 0.85 = $34,000. At a 1.25 mod he pays $40,000 × 1.25 = $50,000. Same crew, same work, $16,000 a year apart.

The mod can also decide who gets to bid. North Carolina's state construction office, for one, lists "EMR/Safety Record" on its contractor prequalification form. Many states use the National Council on Compensation Insurance (NCCI) plan; some use their own rating bureau, so ask your agent how yours works. What keeps a mod down is fewer injuries: safety training, gear that's worn and good traffic control. Report every injury right away so it gets handled well.

• General liability covers injury to other people and damage to their property from your work, like sealer tracked onto a customer's car or a slip on a wet lot.
• Commercial auto covers your trucks and what they tow. Your insurer may look at each driver's record. If employees run errands in their own vehicles, ask about hired and non-owned auto coverage.
• An umbrella adds liability limits above your general liability, auto and employer's liability policies.
• Equipment coverage protects sealcoat units, crack machines, stripers and trailers from theft and damage. Keep a list with serial numbers and values.
• Snow and ice work brings slip-and-fall claims. Read the indemnity clause in every snow contract.

Commercial and public contracts spell out insurance terms. Have your agent or attorney read them before you sign:

• Additional insured: the customer is added to your policy for claims that come from your work. A certificate of insurance shows your coverage; the endorsement is what adds the customer.
• Waiver of subrogation: your insurer agrees not to go after the customer to recover what it paid on a claim.
• Indemnity: you agree to cover the customer's losses from certain claims. Broad versions can make you pay for problems you didn't cause.

When something happens, report it right away, take photos and keep notes.

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