The workers’ comp experience rating modification or e-mod – don’t know it? Don’t understand it? Don’t know how it works? This can lead to real trouble for any business owner with heavy workers comp premiums and lead to higher costs for a long period of time.
Hi, I’m Gordon Coyle, welcome to my channel where I talk about all sorts of issues surrounding insurance and risk for business owners.
Today, I’m going to take a dive into the experience rating mod and explain what this factor in your workers’ comp policy is, how it works, and why you need to understand it so you don’t get hammered by your workers’ compensation insurance policy.
I’m also going to give you a few of the biggest mistakes that decision-makers like you make when it comes to the d-mod and how you can avoid them so stick around to the end of this video to learn that.
What is an ERM or Experience Rating Modification?
The experience rating modification goes by many names – the mod, the e-mod, the experience mod, your ERM, or your experience modifier, but they all mean the same thing.
It’s a rating factor found in your workers’ compensation policy that either debits your policy for a claim experience that is worse than it should be or credits your policy if your claim experience is better than it should be based on your payroll size and classification codes used.
How is your ERM or Experience Mod Determined?
Your mod is calculated either by your state workers’ compensation rating bureau or the NCCI which is the National Council of Compensation Insurers.
There are 11 state rating bureaus and 39 states which deploy the NCCI model for developing your mod and all are pretty similar to each other in how they determine your modifier.
Each employer’s mod is unique to them, their loss or claim experience, payroll, and industry and it is based on three of the last four years of all three of those factors – claims, payroll, and industry.
What does experience rating do?
The purpose of experience rating is to add a level of fairness to the workers’ compensation system countrywide.
In a general sense, it is there to charge employers who have more claims than expected and give credit to employers who have fewer than expected claims.
Why have experience rating modifiers?
As I mentioned, the purpose is to add fairness to the system, but more than that it’s a tool used by the insurance industry and rating bureaus to encourage employers to have safer workplaces so that employees aren’t injured.
Without the experience modifier, there would be less incentive for employers to engage in maintaining safe operating practices or to develop safety cultures.
In fact, in states like New York, the modifier calculation has been recently changed to provide heftier credits and debits for employers on both ends of the spectrum.
Employers with no claims are now getting bigger credit mods and those with terrible experience are seeing their mods gradually increase beyond prior levels.
New York’s purpose is to drive safer work environments. I did a video on NY’s new rule which you can see here. How does Workers Comp Insurance Work?
How does the Experience Mod impact the workers’ compensation premium?
The e-mod impacts an employer’s workers’ compensation premium very directly.
In a workers’ compensation policy payroll is multiplied by a rate for each classification code and then totaled to create something called the standard premium.
That standard premium is then multiplied by the experience rating modifier.
As an example, let’s say your standard premium is $100,000 and your experience mod is .75 which is a credit mod because you had very few claims.
That means your modified premium will be $75,000. Conversely, say you had a terrible claim experience in the past several years and your modifier is 1.25 the modified premium you’ll pay is $125,000.
That’s a huge difference from the employer with no claims and illustrates how the system is supposed to work.
How is the experience rating modifier calculated?
Good question, it’s a fairly complex formula that is carried out by software today, but when I first started in the business was done by hand on a worksheet with several rating manuals and a calculator.
Back then it was prone to claims and errors due to the manual nature of the calculation process.
Today, errors still occur, but less often.
We do recommend having your modifier audited for accuracy every couple of years to make sure you’re not overpaying due to an error.
How can you impact your experience rating mod?
As I just mentioned, you can audit your mod to find errors that were made in the past and get them corrected – we can help you here – but that’s looking backward.
How do you impact the mod looking forward?
There are a number of things you can do and most of them focus on safety and culture.
The greater leverage you can apply to safety processes and procedures the fewer claims you’ll have.
Need help here, let me know I often engage with clients on improving safety practices and getting them on the right track.
Next, you can institute a nurse triage system to evaluate each claim that does occur to determine the best course of action to help control claim costs and outcomes.
In many states, there is a dramatic reduction in a claim’s impact on the mod if you don’t incur lost time – or disability away from work.
It may make sense to pay an employee who is injured and unable to work for several days so that you don’t get hammered in the mod. But this does take some fineness
Claim frequency and severity reduction are fundamentally how you reduce the impact on your mod.
Here’s the bottom line
The experience rating mod, modifier, or e-mod – whatever you call it, has a very significant impact on your workers’ compensation insurance costs.
I’ve worked with a lot of employers who have experienced problems with their mod and didn’t know where to turn.
The good news, as it always turned out, is that it’s never too late to start to work on improving your mod.
That may start with a mod audit, a claim history review, a safety audit, or any number of steps and breaking it down into manageable chunks to assure that you get projects done and work towards better results.
On the flip side of it, if you’ve got a great modifier now, that’s fantastic, but it’s important to be real about this.
Is your great mod the result of aggressive safety tactics – or – is it the result of good luck?
If it’s the former then I recommend engaging in a process of safety management and safety culture development before your luck runs out and your mod hits the skids.
Whether you have a great mod or a not-so-great one and you need help and looking for a team of dedicated experts to work with on your workers’ compensation and experience rating mod issues, I’d love an opportunity to speak with you and see if we’d be a good fit for you and your business.
Common mistakes made by employers and how to avoid them.
The most common mistake made by employers large and small that I see regularly when we’re asked to step into a new client relationship is that no one has been monitoring the claims experience.
The employer, CEO, CFO, Controller, HR manager, no one is watching claims.
No one really knows how many claims have occurred in the past 4 years, how much has been paid out, how much the claim reserves are, or how to prevent those claims from occurring again.
An employer may know or sense that they’ve had a lot of claims but there is no solid information being reviewed.
This is a huge mistake and easily resolved.
You ask your insurance broker for a copy of your loss runs for the past five years and you ask your broker to sit down with you and explain that report to you.
You then should be strategizing what steps you can take to prevent or minimize those claims from occurring again in the future.
The second most common mistake made relative to the mod is that employers are either buying their workers’ compensation insurance directly online without a broker, or they are using the wrong broker.
Your insurance broker can be the greatest resource towards reducing claims and your mod.
They can be your outsourced risk manager if they have the skills, talent, and tools to do that. When you buy your workers’ compensation insurance online or even through your payroll provider you often don’t get a lot of support.
If your mod is 1.00 or above – you need support and the right broker can be a key resource toward a lower mod.