How to Reduce Your Workers Comp Experience Modifier
In my last post, we talked about the math portion of the reducing workers’ comp experience mod and how errors often exist which end up costing clients more premium than they should. When we perform audits on mods we often do find errors on prior policy terms and can get refunds back to our clients, but more importantly, we set the record straight for a new upcoming policy term and for future terms down the road, further saving money.
To refresh a few facts, let’s just start with what the experience rating modifier or mod is.
The mod is intended to add fairness to the workers’ compensation insurance system by giving employers with better than expected claims experience a discount on their premiums and surcharging employers with worse than expected claim experience.
The mod is a multiplier in the premium development process so it can have a very significant impact on the final premium you pay.
For many insureds in heavy industrial businesses, a debit modifier can drive costs through the roof. And for contractors with a modifier over 1 point zero can lead to becoming ineligible to bid on some projects. For these reasons and many others, managing your mod and understanding what goes into it, is important.
Today we’re going to cover a few more bullet points on how to reduce the modifier and focus on claims. As mentioned, your claims and your payroll are the only variables in calculating and reducing workers comp experience mod. We’ll cover payroll audits in another video so let’s jump into claims.
Obviously reducing claim frequency and severity is on the top of the list. The fewer claims you have the lower your mod will be. We’ll talk more about safety, safety culture, and safe work practices in another video, but for now, I really want to get to another fundamental lesson in the mod.
And that is understanding how small claims present a greater impact to your mod than a large claim does. What I mean by that is that your mod will increase more dramatically from having 10 $10,000 claims in your experience rating period than having one $100,000. Even though the insurance company will pay the same amount out in dollars the 10 smaller claims will blow up your mod way faster than one large claim.
There are technical reasons for this relative to what’s called the Split Point in the calculation, but the reasoning behind this is that an employer with 10 smaller claims operates a firm that is less safe than the average, and the employer with one large loss is thought to be an anomaly – a shock loss that doesn’t happen that often.
This is where employers and their brokers often get confused – they compare the company’s loss ratio – the total amount of claims divided by the total premiums for a given period of time to the mod. The loss ratio may be good, but the mod is high. What’s going on? And they ask; what do we need to do to reduce our workers comp experience mod?
Unfortunately, the mod is much more nuanced than a simple ratio, and the example I just gave of frequency claims impacting the mod heavier than a severity claim is a good example of that.
I want to take this on a more practical level – few employers are going to have 10 $10,000 claims over a three year period of time.
But what I do often see when I perform a review is a claim for $75 here, another for $130 there, and maybe another for $250 and I ask the client – why are you putting in small claims like these – especially when they’re medical-only claims?
They’ll answer that their agent said to report ALL CLAIMS to the insurer. There is some truth to that, but what’s missing is you as the employer can pay for certain medical-only claims out of pocket, and still put the insurer on notice for information purposes only. By doing so you’ll comply with most state workers comp laws and you’ll keep these small claims out of your experience rating plan.
The purpose of this story is that the employer with a handful of these smaller claims will pay significantly more in their workers’ comp costs than if they had paid the claims out of pocket. For a larger firm in an industrial setting or construction, this could be very significant.
Depending on the size of your firm and the claim frequency a triage nurse who is on call 24/7 may be a good idea to help you determine which claims you should pay out of pocket and those that you have the insurer pay.
There’s a lot more to what we call first aid claims than what I covered here, so if you’d like more information on that, or how to control your modifier, or just a general insurance or workers comp question, please feel free to contact me. I’m always open to a conversation to see if I can help you and your situation.
So just to recap – if you’re experiencing pain around your workers’ comp experience modifier the types of claims you’re submitting may be a factor. Smaller frequency type claims are going to impact your mod greater than one large claim. Paying first aid claims out of pocket may be a good idea, but you should establish the right protocols to stay compliant with the law and your insurer. Have other questions, reach out.