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If you’re trying to understand why your workers’ compensation premiums are going up (or down), take a look at your company’s experience modification rate, or e-mod.
An e-mod, for the uninitiated, is a ratio that expresses actual vs. expected losses that occur over a (typically) three-year period.
The National Council on Compensation Insurance, based in Florida, computes experience ratings for all businesses and industries in much of the country. The same factors are used to calculate each employer’s experience modification regardless of which insurance company they turn to for coverage.
NCCI’s formula gives the frequency of claims filed greater weight than the severity of an injury or illness. For example, six claims that occur over a three-year period totaling $20,000 will have a greater impact against your e-mod than one claim in three years totaling $20,000.
Your company’s e-mod rating, coupled with other factors, such as payroll information and classification codes, determine how insurance companies price workers’ compensation insurance for your specific business.
No one wants an e-mod higher than 1.00, which is considered average. Higher e-mods, as might be expected, mean higher premiums. A 1.20 e-mod, for example, could lead to a 20 percent increase in premiums, while a 0.80 e-mod might see a 20 percent reduction in premiums.
We’ve seen plenty of cases in which companies are paying tens of thousands of dollars in higher premiums year after year because their e-mod was spinning out of control.
How to Change Your E-Mod
Getting your e-mod under control takes patience. It does not happen overnight. In fact, because it’s calculated based on several years of data, it can easily take two or more years to begin to see it drop.
Typically, our strategy is to begin holding quarterly meetings with our client to review all claims.
We coach our clients on the importance of prompt claims reporting. We also help our clients understand that it is in their best interest to be thorough in helping the insurer gather the facts on a claim. In other words, our client has to become a partner in investigating claims with the insurer.
Here are four more important items you’ll want to consider to help regain control of your e-mod:
- If you’re in the construction business – or any business, really – it’s a good idea to start by checking your e-mod score to understand why it is what it is. You’ll want to ask about the data used to calculate your e-mod and whether it is up-to-date and correct. Don’t assume your current insurance brokerage is doing this for you.
- You’ll want to be sure you have a sound safety program in place. This includes providing new employee orientations, refresher training, and remedial training as needed. Also, report injuries early, make sure to maintain safety training records for OSHA reporting, and investigate accidents and near-misses.
- You’ll need a return-to-work plan. One of the best ways to help an injured employee recover, and to keep your claim costs down, is to offer them modified work tasks. Modified duty may include modifying a worker’s essential tasks, changing work conditions or physically modifying the workplace.
- Double-check what the insurance company is telling NCCI about your claim. Insurers will set up a reserve to pay for a claim and will often submit that amount to NCCI rather than the actual, possibly lower amount required to resolve a claim. That can end up causing your e-mod to go up more than it should.
There’s more to all of this, but here’s one more important point to keep in mind about your e-mod:
Even employers that do everything right and have no claims can see their e-mods rise. Why? Because if companies in their industry had a bad year, then everyone shares in the pain.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the nation. For more information about workers’ compensation insurance coverage, contact us online or call 480-730-4920.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.