When Ownership Gets Complicated: How Business Structure Impacts Your Experience Mod and Workers’ Comp Costs

The Hidden Risk in Business Ownership Structures

Commercial insurance producers working in the middle market space often pride themselves on providing risk management guidance beyond quoting and binding policies. But one of the most overlooked areas in workers’ compensation is how a company’s ownership structure can impact its experience modification factor (mod)—and ultimately its insurance costs.

Agents regularly encounter businesses where the owner is involved in multiple ventures—sometimes related, sometimes not. What’s dangerous is that many of these owners don’t realize how their stake in these various entities can lead to combinability issues with rating bureaus like NCCI.

The biggest problem? Agents often fill out the workers’ comp accord application without fully investigating or asking about business ownership relationships. This leads to misrepresentations on the ERM-14 form or flat-out incorrect submissions, which can backfire in the form of mod recalculations, premium adjustments, or worse.

Understanding Common Majority Ownership

At the heart of this issue is the concept of common majority ownership. It’s a simple rule with massive implications: if a person or group has more than 50% ownership in two or more entities, those entities must be combined for mod purposes.

That means even if the companies operate in completely unrelated industries—say, a flower shop and a dynamite manufacturing business—they are still mod combinable if ownership exceeds that 50% threshold.

Let’s make it real:

David and Kevin each own 50% of Company A.
David, Kevin, and Kyle each own one-third of Company B.

Even though no one person owns a majority of both, David and Kevin together own more than 50% of both—that’s common majority ownership. These companies must be combined for mod calculation.

There are a few state-specific quirks (Pennsylvania and Georgia have their own nuances), but most rating bureaus across the U.S. apply this rule consistently.

This is why asking about business ownership upfront isn’t just a compliance issue—it’s a sales opportunity. If your client owns multiple businesses, why not offer to review them all?

The ERM-14 Form: A Tool, Not a Trap

Few forms in insurance cause more confusion than the ERM-14. Producers often view it as a bureaucratic nightmare—a Rubik’s Cube with no clear instructions. But it’s really just a tool. Its purpose is not to dictate the outcome of mod combinability. It exists to present facts to the rating bureau, which then makes the determination.

Yes, the form is rigid. It uses a simple three-column structure: Buyer, Seller, and Combined Entity. But most real-world business deals don’t fit neatly into those boxes—think multi-entity M&A activity, holding companies, and restructuring.

The solution? Don’t let the form limit your clarity. Attach narratives, supplemental documents, and charts if necessary. As long as you include the facts—entity names, EINs, effective dates, operational changes—you’re doing your job.

And here’s the golden rule: Never guess. Always confirm.

The Impact of Business Transactions on Mods

When your client buys a business, they also buy its experience. It doesn’t matter if it was a stock sale or an asset purchase. Rating bureaus consider more than just legal structure. If operations, employees, and clients transfer, then so does the mod.

Think of it like buying a house. If the inspection reveals a roof that needs replacing, it doesn’t always kill the deal—but it becomes part of the negotiation. A bad mod should be viewed the same way. It’s not necessarily a dealbreaker, but your client should know what they’re buying—because that new mod will affect insurance premiums for the next three years.

If you’re not having conversations with your clients before they engage in mergers or acquisitions, you’re missing a vital opportunity to serve as their strategic advisor—and you’re also exposing them to potentially disastrous cost increases.

Why You Can't Escape a Bad Mod

One of the oldest tricks in the book is to “start over” when a company’s mod gets too high. Business owners create a new LLC, transfer the payroll and operations, and hope for a clean 1.00 mod.

Not so fast.

The rating bureaus have anticipated this move. It’s called the Successor Entity Rule. If a new company continues the operations of an old one, the mod follows. Period. Intent doesn’t matter—results do.

If the rating bureau discovers a deliberate attempt to evade experience rating, they can backdate corrections, charge additional premium, and open the door for major penalties. With today’s technology and data analytics, entities like NCCI are using pattern recognition tools and AI algorithms to detect unusual behavior and flag mod manipulation.

In short: You can’t outrun your mod. You have to fix the underlying issue—safety, claims management, and operational discipline.

Mod Aggregation and Dividends: The Florida Example

Florida presents a common scenario: two companies under common ownership, each with their own workers’ comp policy and dividend structure. Business owners sometimes resist combining mods because they’re afraid one company’s claims will impact the other’s dividends.

Here’s the rebuttal: if you’re concerned about claims impacting your dividend, then you should be concerned about having claims at all. Instead of trying to isolate risk, aggregate premium to qualify for larger dividends and negotiate better terms with your carrier.

That’s the smarter play.

Building Proactive Risk Management into Your Process

This isn’t just a one-time conversation. It needs to be embedded into your sales process and client management strategy.

Here’s how:

Trigger ownership checks in your CRM when a new entity is added to a client record.
Set annual reminders to confirm whether your clients have acquired, sold, or spun off any companies.
Train your service and sales teams to recognize ownership red flags.
Make mod reviews part of your annual client review meetings.
Include education on mod impacts in onboarding packets for new clients.

Proactive risk management isn’t just good service—it’s good business. It keeps your clients compliant, protects your agency from E&O exposure, and creates differentiation in the marketplace.

Final Thoughts: Stop Reacting and Start Advising

Too many agents are stuck playing defense—responding to audit corrections, fixing midterm premium changes, and cleaning up bad paperwork. It’s time to play offense.

Here’s how:

Own the mod conversation. Make it part of every new business pitch and renewal meeting.
Educate clients on the importance of keeping you in the loop before they engage in business transactions.
Use the ERM-14 form as a tool, not a roadblock.
Track ownership across all entities and ensure your internal processes prompt the right questions.

In a hardening workers’ comp market, the agents who understand how ownership drives experience rating will stand out. This knowledge becomes a sales wedge, a retention tool, and a reputation builder.

And at the end of the day, it’s not just about avoiding mistakes—it’s about building trust and positioning yourself as the expert your clients rely on.

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