What are the minimum requirements to submit a quote for coverage through the Fund?
Minimum requirements are as follows:
All policies are subject to a $1,000.00 minimum yearly normal premium regardless of paying method (annual or monthly). Policies cancelled before the end of the year expiration date will be subject to a pro-rated minimum normal premium based on the $1,000.00 yearly minimum normal premium times the percentage of the year the policy was effective. The minimum premium and/or pro-rated minimum premium is not subject to an experience rating modification.
You must have a governing class code that is contractor related. Any secondary exposures which may not be contractor related must be incidental to the overall operation. Acceptable governing classifications are indicated on the Fund's rate pages. (Refer to 2021 Rates and/or 2022 Rates)
What if I have started a new business, have never had workers' compensation insurance before or have less than four (4) years of workers' compensation insurance experience?
The Fund is still very interested in reviewing this type of submission. However, we will require some additional information as follows before considering offering a quote:
The exact date the company started business. If workers' compensation insurance was carried, please identify the years.
Work experience of the officers of the company (i.e. 23 years of work experience as a Mason).
A statement from the owner or officer stating the following: The owner, nor any of his/her employees, have ever filed a workers' compensation claim or passed one on to another party. This statement must be signed and dated.
Are sub-contractors used? If so, how much of the total payroll can be attributed to sub-contract labor? Are any uninsured sub-contractors hired? If so, have any claims been filed by these uninsured sub-contractors? (A prospective member with less than one (1) full year of workers' compensation experience whose estimated payroll is attributable to a use of 50% or more sub-contract, contract, casual or 1099 labor, is not eligible for Fund membership.) Prospective members may be subject to a pre-enrollment safety inspection.
It is important to note that additional information may be requested depending on each individual risk.
Yes. For the Fund's discount structure, click here.
Do I have to join a Trade Association to become a member?
Yes. You must join and maintain a membership in good standing with one of the Fund's seven (7) participating Trade Associations in order to receive and keep workers' compensation coverage through the Fund.
Which Trade Association do I have to join?
The Fund's seven (7) participating Trade Associations have various eligibility and membership requirements. Please contact the Trade Associations to find out which one is best suited for your company's needs.
What is required to be submitted to become a member?
To become a member of AGC/SIF you will need to submit the following information:
Audits, premium and a loss run for each of the previous four (4) years, and a "DEC" sheet for the current policy.
A statement of net worth and/or financial statement (Per KRS Chapter 304.50).
Prospective member has 30 days after policy inception date to provide proof of membership to one of the Fund's seven (7) participating Trade Associations. Membership in a Trade Association must be maintained for the duration of membership in the Fund.
Soliciting Agent to the Fund is required to have proof of membership to one of the participating Trade Associations.
Prospective Members may be subject to a safety inspection by the Fund's Safety Engineer prior to admittance to the Fund.
Any prospective member who uses any of the following restricted classifications will be subject to approval by the Fund's Excess Carrier.
106 - Tree Pruning, Spraying, Repairing - All Operations & Dr.
5037 - Painting - Metal Structures - Over Two Stories in Height & Drivers
5040 - Iron/Steel Erection - Frame Structures
5057 - Iron/Steel Erection - NOC
5059 - Iron/Steel Erection - Frame Structures Not Over Two Stories in Height
5160 - Elevator Erection or Repair
5222 - Concrete Construction in Connection with Bridges or Culverts
5551 - Roofing - All Kinds & Drivers
5610 - Cleaners - Debris Removal
6003 - Pile Driving
6204 - Drilling NOC & Drivers
7421 - Aviation - Transportation of Personnel - In Conduct of Employer's Business - Flying Crew
7538 - Electric Light or Power Line Construction & Drivers
7600 - Telecommunications Co. - Cable TV, or Satellite - All Other Employees & Drivers
What will my e-mod be?
The E-Mod will be calculated using prior years' audits and loss runs. Note: An E-Mod of 1.50 or higher requires special acceptance from the Fund's Excess Carrier.
What is an e-mod and how is it calculated?
The Experience Rating Plan used in workers' compensation insurance allows each employer an opportunity to tailor the cost of their insurance premium. In essence, the plan works similar to the "safe driver" discount program in the automobile insurance industry in that losses and safety results of one employer are compared to similarly classified employers from the same state (in this case, Kentucky). The end result of this comparison is the "Experience Modifier" which can be found in bold font on the second to last line of your experience modifier worksheet(s).
Simply stated, if your company has fewer accidents and losses than the industry average (in the state of Kentucky), this will most likely result in an experience modifier that is less than 1.00 which ultimately reduces the amount of premium you will pay for your workers' compensation insurance costs. Conversely, if your company's accidents and losses are greater than the industry average (in the state of Kentucky), your experience modifier will most likely be greater than a 1.00, resulting in increased premium costs. On the surface, the experience rating plan may seem like a reward-penalty program, but in fact, it was designed as a tool to help better predict future losses for an individual employer. Now, let's explore some basic terms associated with the experience modification process.
Code: Describes the overall operation of a business. (i.e. 5645 - Carpentry detached one or two family dwellings)
ELR: The expected loss rate, or ELR, is the amount of expected losses by classification per $100 of payroll. These factors are state specific (KY) and are actuarially determined by the National Council on Compensation Insurance (NCCI) and approved by Kentucky's Department of Insurance.
D-Ratio: The discount ratio, or D-Ratio, is the factor that is used to determine what amount of the expected losses (see above) for each code are expected primary losses.
Payroll: The payroll column identifies your audited payroll by class code for each applicable year. However, if audited payroll has not been finalized (audited premium paid or refunded), your reported payroll is used.
Expected Losses: Expected Losses are as the term suggests, the amount of losses that are expected based on your class code and payroll amount. To determine the expected losses the ELR rate is multiplied by the payroll and then divided by one hundred (100).
Expected Primary Losses: Expected Primary Losses are those losses that are expected to be primary. To calculate this value, multiply the expected losses by the D-Ratio. (Of note: a primary loss is the first $18,500 of a loss.)
Claim Data: This section represents the employer's loss experience over a specific period of time. In some cases, claims that have a total incurred of $2,000 or less are grouped together for reporting purposes. Additionally, medical-only losses are reduced by 70% for purposes of the experience modification calculation.
Actual Incurred Losses: Actual Incurred Losses are the actual dollars spent to pay a claim. In the case of an open claim, this figure will also include the reserve amounts which are dollars that the insurance company expects to pay for future payments on the claim. Actual incurred losses are compared to expected losses.
Actual Primary Losses: For losses that are less than $18,500, the full amount is considered to be the primary value. For losses that are greater than $18,500, only the first $18,500 is considered to be primary. Actual primary losses are compared to expected primary losses.
In the insurance business there is a saying: If you eliminate frequency (# of claims) you eliminate severity (the cost of the claim). Simple but true. Such truth is evident by the fact that the experience rating plan gives greater weight to the frequency (again, # of claims) than it does to the severity (again, the cost of these claims). Why? Because frequency is a better predictor of losses than is severity. In fact, the way the experience modification plan is structured, there is an economic incentive for the employer to avoid losses BUT does not unfairly penalize an employer for a high dollar accident. So, what does all of this mean? It means that emphasizing safety in the workplace could ultimately reduce the number of claims and consequently keep your premium dollars where they belong - in your pocket.Note: The above information is to be considered only as a general overview of the experience modification factor calculation process and is intended for informational purposes only. Finally, the Kentucky AGC/SIF would like to acknowledge the National Council on Compensation Insurance (NCCI) for their indirect contribution to this informational guide.
Is there any additional information reviewed for membership consideration?
Yes. The following situations are reviewed on every submission.
Own, operate or lease an aircraft/watercraft?
Exposure to flammables, explosives, caustics or fumes?
Exposure to radioactive materials?
Work performed underground or above 15 feet?
Work performed on barges, vessels or docks?
Engagement in any other type of business?
Use of ANY sub-contractors? (Certificates of Insurance required)
Subletting without CI's?
Formal safety program in operation?
Is group/individual transportation provided?
Employees under 16 or over 60 years of age?
Part-time employees or seasonal help?
Employees with physical handicaps?
Work out of state? (The AGC/SIF provides out of state workers' compensation coverage for regularly employed Kentucky employees ONLY. No coverage in the states of Florida, Illinois, New Jersey or New York.)
Sponsorship of athletic teams, etc?
Requirement of pre-employment physicals?
Previous declination, cancellation or non-renewal prior to application to the AGC/SIF? If so, what was the reason?
Any previous OSHA violations and subsequent fines?
Any exposure to asbestos? (The Fund does not cover asbestos-related operations.)
Any exposure to coal? (The Fund does not cover coal-related operations such as hauling or mining.)
How long does it take to receive a quote?
The time it takes to receive a quote is based in large part on the Fund receiving the necessary underwriting information as outlined above. There is no definitive time table.
What should I know if I am accepted as a member into the Fund?
So you've been accepted to the Fund! Congratulations! Now what?
The date we receive the deposit check (certified or agency check) and all requested additional information is the date coverage is bound (unless a later coverage date is requested). Coverage cannot be bound orally, by voice mail or by e-mail. NO EXCEPTIONS! All policies provide coverage through December 31st of each year and are automatically renewed on January 1st. All other members are on a January 1st through December 31st policy period with automatic renewal on January 1st or until cancellation date.
Policies with annual normal premium under $1,600.00 must be on an annual billing basis.
New members must tender a 25% deposit before coverage begins. The deposit is based on your normal annual premium that has been modified and discounted. This deposit is not used as premium, but is maintained in escrow until such time the member leaves the Fund. Upon clearance of all additional premiums due to the Fund and satisfactory compliance with all obligations (audits after cancellation), the deposit will be returned (minus any amounts due the Fund).
The 25% deposit must be on account with the Fund at all times. Amounts of deposit may be reviewed and updated on a yearly basis.
All members are required to pay a $100.00 surcharge yearly. The surcharge is collected once every calendar year. New members are required to pay the surcharge upon acceptance into the Fund. The amount due is not pro-ratable. The gross amount of $100.00 is required regardless of the date in the year joined. The surcharge is not considered premium and is not added to payments received for premium obligations.
If accepted on a monthly pay basis, the first month's premium is due within 30 days of acceptance. Should your deposit and/or premium check be returned for insufficient funds, all further checks must be certified. Failure to comply with the aforementioned policy may result in cancellation.
What is the Fund's policy on reapplying for membership?
Reapplication for membership to the Fund does not constitute a reinstatement of any previous policies with the Fund. All former Fund Members REAPPLYING for membership to the Fund will be subject to identical underwriting criteria reserved for new applicants. Additionally, any premium disputes arising from a previous policy must be resolved in order to proceed with a quote. Finally, all former Fund members cancelled for continuous adverse claims experience must wait a minimum of two years before reapplying.
What is an adverse loss ratio?
Each year, the Fund determines its operating expense ratio. The operating expense ratio is the percentage of every premium dollar the Fund utilizes in running its daily operations. So, if the Fund requires $.25 cents of every premium dollar to run the daily operations of the Fund, any loss ratio above 75% would be considered adverse. For example: Company A pays the Fund $1.00 dollar in premium for 2004. Additionally, Company A incurs $.76 in losses for 2004. From the beginning, the Fund will utilize $.25 cents of the $1.00 dollar of premium for daily operations. So, Company A can incur $.75 in losses and still be an acceptable account, as the Fund will break even. Because Company A has incurred $.76 cents in losses, it is considered adverse. The Fund is now required to pay out more money than it has taken in for the year. This is an adverse situation.
How do I calculate a loss ratio?
A loss ratio is calculated by dividing incurred losses by normal premium.
Normal Premium = $17,000
Incurred Losses = $4,000
Loss Ratio = 4,000/17,000 or 23%
What happens if my loss ratio becomes adverse?
The Kentucky AGC/SIF's Watch List was amended effective 9/30/2003. The Watch List is generated on a calendar quarter basis and is used to identify Fund members with Adverse Experience.
Adverse Experience is defined as a loss ratio of equal to, or greater than, a predetermined loss ratio which is established annually by the Fund.
Loss Ratio is defined as total incurred losses (paid and reserved) divided by earned normal premiums.
To identify adverse experience, the loss ratio is calculated using the most recent five (5) years of losses and premiums, or since the coverage effective date, whichever is less, with the current year's premium being pro-rated through the end of the current year.
The Fund's Watch List contains a "Shock Loss" provision defined as a single loss occurrence that does not exceed $200,000 total incurred (claims paid + reserved amounts) and which if removed, would make the five (5) year loss ratio less than the predetermined loss ratio. If further loss ratio deterioration occurs due to increased totals incurred and subsequent to the shock loss, OR the single loss occurrence exceeds a total incurred of $200,000, either of which results in an increased overall loss ratio, consideration for a shock loss is removed and regular Watch List actions are applicable.
If the "trigger loss ratio" (determined annually by the Fund) is reached or exceeded, the following actions will occur based upon the member's overall loss ratio since the policy inception date or 1987, whichever is less:
Overall loss ratio of 71% - 80%: Regular Warning Letter or Shock Loss Warning Letter sent to member.
Overall loss ratio of 81% - 90%: 150% Adder is applied to e-mod and any premium discount is removed for the period in which the adder is in effect. Exception is shock loss provision.
Overall loss ratio of greater than 90%: Cancellation of the worker's compensation policy for continued adverse claims. Exception is shock loss provision.
What is the Agent's Commission rate?
The agent's commission rate is currently 10.0% of normal premium on new and renewal business and is paid quarterly.
Do Agents have to join a Trade Association?
Yes. Agents or the agency they work for must be members of a participating Trade Association in order to write business with the Fund.
What is a dividend?
A dividend is a share of surplus allocated to a policyholder in a participating insurance policy. If the Fund takes in an excess amount of premium over liabilities for a given policy year, the excess premium may be distributed in the form of a dividend to those members who qualify. The Fund waits four (4) years to return a dividend for a given policy year. In doing so, the Fund can more accurately determine the level of liabilities in a given policy year. Once the liabilities have been accurately determined, the Board of Trustees reviews the feasibility of a dividend distribution.
When are dividends paid?
Historically, dividends have been paid in the month of March.
How long has the Fund paid dividends?
The Fund has paid dividends to its members every year since 1994.
What do I have to do to qualify for a dividend?
In order to qualify for a dividend, a Fund member must:
have been a Fund Member in the year for which the dividend is being paid and;
be a current member at the time in which the dividend payment is made and;
have had a loss ratio of less than 100% for the year for which the dividend is being paid and;
be current in all of their payment obligations to the Fund and to their Trade Association
Is there a formula for how dividends are calculated?
Yes. The following formula was approved by the Kentucky Department of Insurance in November, 2005.
Determine the total amount of dividend to be paid.
Determine employers that are eligible for a dividend:
Must be current members (must be current in all of their obligations to the Fund and to the association to which they belong).
Their premium exceeds their losses (paid and reserved) for the dividend year.
Determine the sum of all eligible employers' excesses (sum of each employers' premiums minus their losses).
Determine the DRF (Dividend Return Factor) by dividing #1 result by #3 result.
Determine each members' dividend by multiplying its excess by the DRF.
Determine each members' Funding Commission tax refund by multiplying the dividend by the appropriate Funding Commission tax rate (ex:9%).
Determine the total amount to be returned to each member by adding #5 and #6.
EX: Total Dividend to be paid = $8,500,000
Sum of all eligible employers' excesses = $15,000,000 DRF = 0.5667 (8,500,000/15,000,000) Member's excess = $5,000 Member's dividend = $2,833.50 (0.5667 * $5,000) Tax refund = $255.02 (assume 9% Funding Commission rate for dividend year)
Member's total dividend refund = $3,088.52 ($2,833.50 + $255.02)
Has the Fund ever incurred an Assessment?
Since its inception in May of 1979, the Kentucky AGC/SIF has never assessed its members. However, each operating group self-insured fund is required to have a functional and approved Assessment plan. The Fund's Assessment Plan was approved by the Kentucky Department of Insurance in November of 2005.
Determine the total amount of the assessment to be levied by Trustee Resolution.
Determine the loss ratio for the entire Fund for the year of the assessment (FLR)
Determine each member's loss ratio (Total Incurred/Premium). (MLR)
Apply the following formula to determine each member's assessment: (0.3+MLR)/(FLR)*(Member Premium/Total Fund Premium)*Total Assessment.
EX: Total assessment = $10,000,000
Fund loss ratio = 1.2 (120%) Member loss ratio = .5% (50%) Member's premium = $20,000 Total Fund premium = $60,000,000
Member's Assessment = (0.3+.5)/(1.2)(20,000/60,000,000)(10,000,000) = $2,222.22 EX #2: (0% loss ratio) = (0.3)/(1.2)(20,000/60,000,000)(10,000,000) = $833.33
Does the Fund accept Form-4's?
The Kentucky AGC/SIF does NOT accept ANY waivers, Form-4's, or other contractual agreements that waive workers' compensation insurance coverage on any individual. An exception to this are Forms-4's on owners or officers of a corporation, not employees and the rejection notice on the owners or officers must be on file with the Kentucky Department of Workers' Claims to be valid.
How do I add a class code to my policy?
To add a class code, please notify the Fund Office in writing. Please be advised, however, that certain class codes may require approval, or special acceptance, from the Fund's Excess Insurance Carrier.
How do I report a name or ownership change?
To report a name or ownership change, please notify the Fund Office in writing. Please be advised, however, that ownership changes may require a new policy, depending on the nature of the ownership change.
How do I cancel my coverage?
To cancel your workers' compensation insurance policy, please notify the Fund Office in writing. Please notify the Fund Office of the impending cancellation ahead of desired date, as the Fund Office will not backdate cancellations.
What is the Special Fund Tax?
The Special Fund Tax is determined by the Kentucky Funding Commission on an annual basis. The Special Fund was originally created as a means of relieving employers of the burden of paying for a disability that was pre-existing, dormant, or non-disabling. (Kentucky Workers' Compensation Law Annotated: CompEd, Inc., 2004) However, despite the abolishment of the Special Fund in 1996, the existing liability must be paid by Kentucky employers.