Thinking of Buying a Business in 2023?

Congratulations! You’ve probably spoken to your banking partner, CPA and maybe a business advisor. What about your workers’ comp TPA? It’s typically the last thing on anyone’s mind while progressing through a merger or acquisition, but reviewing the workers’ comp policy should be part of the due diligence process. With a home purchase, you have a thorough inspection done by experts that know what to look for, and they provide a report on anything that could become costly down the road. If it that analysis makes it seem like a money pit, you may choose not to move forward. Shouldn’t a buyer also investigate every angle of a business purchase the same way? Even if the purchase is “in name only,” Ohio BWC has other ideas about how much of the previous owner’s problems you’ll inherit.

Let’s say you already own one business, and you’re interested in purchasing another. Your existing business is enrolled in BWC’s Group Rating program, with a 40% discount on premiums. You cover all of the usual bases during the due diligence process – examine the seller’s overall financial health, debts, leases, contracts, and any other obligations. Everything appears to be in good shape. The transaction is complete, and you now own another business. You contact your workers’ comp TPA to let them know you have a new entity to cover for workers’ comp. Ohio BWC’s stance on most acquisitions is that the buyer will absorb the experience and losses from the predecessor’s policy. It could be a lucky strike, with zero claims during that four year experience period. If that’s not the case, you could be inheriting a penalty rating, sky-high premiums and your existing policy could even get booted from Group Rating.

Most Ohio TPAs will state somewhere in their Group Rating disclosures that clients shouldn’t engage in structural reorganization, mergers, or acquisitions while participating in their program. They committed to that -40% Group rate based solely on the loss history of your original policy at that time. 

A 360° review of the seller’s insurance programs isn’t too much to ask. In Ohio, there’s even a simple form that buyers can utilize (with permission and signature of the seller) to have a TPA provide an analysis of the BWC policy. This should show the claims in their experience period (and how long they’ll impact the premiums), the current premiums and projections for the year ahead, EMR and any liens or   program enrollments.

Including this in the buying process isn’t just important to Group Rating participants. If the seller is part of a Group Retrospective program, or has been in the last three years, it’s important to outline in the purchase agreement who will receive the Group Retro refunds when they’re released. Ohio BWC will automatically send any rebates to the address on the new policy. If you have questions about how an acquisition or merger may impact your company’s workers’ compensation program, we’re here to help!  You can contact us at 440-249-5260 or sales@spoonerinc.com.