Employing a rigorous and consistent workplace safety program will bring many benefits to your company. Among these is the potential to reduce your company’s experience modifier and, in the process, substantially lowering Workers Compensation premiums. An experience modification (E Mod) rating is a comparative analysis of your company’s claims and loss reserves for Workers Compensation to other businesses within the same class code as your business.
E Mod is like making par in golf. The more birdies and eagles you make, the lower your score. But unlike your golf game, an E Mod rating requires a team effort. Everyone needs to be conscious of workplace safety. And you need to ensure the factors for figuring your E Mod number are accurate and computed correctly.
Developed by the National Council on Compensation Insurance (NCCI), an E Mod gives employers some power over controlling the cost of their Workers Compensation programs. Each year, NCCI, or a separate rating bureau in some states, evaluates your company’s payroll and claims experience for the past three years and calculates your E Mod. The average factor is expressed as 1.00. A firm with a factor below 1.00 will pay lower premiums while a firm with a factor greater than 1.00 will pay more.
Experience modification is not optional. It is applied to all qualified firms, whether privately insured or by companies covered through state insurance pools. Understanding what the E Mod rating is and how it is calculated can be confusing, but mastering the procedure can deliver big premium savings for your company.
Usually, a company warrants an E Mod rating when it has paid at least $5,000 of Workers Compensation premiums in each of the last several years or has paid $10,000 or more in premiums in a single recent year. Typically, payroll and loss data going back four years is used to figure the rating in the first year. The most recent completed policy year is excluded from the computation. For example, an E Mod effective August 1, 2003, would use policy data from the policies in 1999, 2000 and 2001.
IS YOUR E MOD CORRECT?
Once your company receives its E Mod rating, you may question whether it was figured correctly, and what can be done to make it lower? Rating bureaus, including the NCCI, base their calculations for your rating on data that was reported to them by your insurer. If incorrect or incomplete data was reported, your rating will be inaccurate, and might end up costing you more. If possible, you should have the rating bureau explain how it determined your rating to ensure it was done in an accurate manner. If you discover an error, you must convince your insurer to resubmit its data to the rating bureau to correct the problem. In some states, errors can be corrected over multiple-policy years, and if the error generates a premium credit, your revised rating can bring big savings.
An area that is often overlooked by employers that can negatively affect their E Mod rating is open claim reserves. Loss claim reserves are treated the same as paid claims when an E Mod is calculated. A loss reserve that does not realistically reflect the potential claim can create an overcharge to the employer and raise your rating. Correcting this improbable loss reserve is difficult once the insurance company has reported it to the rating bureau. The best advice is to closely monitor each reserve for a Workers Compensation claim. Can appropriate reductions in reserves be negotiated? Can the case be closed? This review of loss reserves is especially imperative toward the end of the policy year.
Although making par for most golfers is an achievement more dreamed of than realized, implementing sound safety programs and closely monitoring the reporting and calculation process used to determine this factor can help obtain a lower E Mod rating. Need help determining your E Mod? Give our office a call; we can help!