Kris’s Korner

Combinable Risks – Past actions are not a guarantee of future actions, but they stand as a very good indicator.  Why does this matter for Workers’ Compensation?  Theoretically, owners run each operation in essentially the same manner.  Employers looking for the cheapest and easiest way will likely continue down the same path in the future.

Common majority interest is the basic rule of combinability. When the same person, group of persons or a corporation owns a majority interest in multiple entities their loss experience is combined to develop a common (combined) experience modification factor.  Majority interest is created when the same person or person(s) combined ownership is more than 50 percent of an entity. But majority interest can be determined in many ways. The National Council on Compensation Insurance (NCCI) lists the following:

  1. Majority of issued voting stock.
  2. Majority of the owners, partners or members if no voting stock is issued.
  3. Majority of the board of directors or comparable governing body if a. or b. is not applicable.
  4. Participation of each general partner in the profits of a partnership. Limited partners are not considered in determining majority interest.
  5. Ownership interest held by an entity as a fiduciary. Such an entity’s total ownership interest will also include any ownership held in a nonfiduciary capacity.

Regardless of how a group is created and combined, no entity’s experience will be used more than once.  Without the ability to combine loss histories, workers’ compensation carriers would potentially be victims of inadequate premiums.  Rate predictability and possibly rate adequacy may be compromised without combinability rules.

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