The cost of workers’ compensation can be a source of frustration for a business owner. We recommend that you consider turning this expense into an opportunity. While work comp is often the most expensive property and casualty insurance premium for businesses, it is also an expense upon which you have control. What drives the cost or workers compensation and how do you manage it?
A key component in determining your premium is your Experience Modification Rate (EMR), also called the experience mod or modification. Understanding the experience mod is a first step in taking control of your workers’ compensation expenses.
What is an Experience Modification?
Your experience mod is calculated by the National Council on Compensation Insurance (NCCI). The formula takes three years of your actual data (work comp claims and audited payroll) and compares it to industry averages for the same work comp classifications used for your business. This assessment is called the Experience Modification Formula. In an overly simplified description of the formula:
- If your actual losses are higher than the “expected” losses, you will have an experience mod of greater than 1.0.
- If your actual losses are lower than the “expected” losses, you will have an experience mod of less than 1.0.
How can you take control of this cost?
Create a safety culture:
- Work with your insurance carrier, your broker, and your industry partners to build an environment where employees never put productivity before safety.
- Develop customized safety and employee manuals and review them regularly.
- Train your employees constantly, emphasizing the human element over the financial element.
- Remember and emphasize that “safety is a quality-of-life matter!”
- With your broker, create an effective accident investigation program.
- Work with all stakeholders to ensure that you are creating a safe environment – delivery drivers, guests, contractors, subcontractors, neighbors, landlords etc.
Hire and train good people:
- Develop an effective employee selection process,
- Have a good drug-testing program.
- Have an effective training and mentorship program.
- Help the new employee succeed and be safe. 35% of workplace injuries happen in the first year (www.safetyandhealthmagazine.com)
Manage claims:
- Have a strong return-to-work program.
- Use panels of physicians that includes occupational physicians who will coordinate return to work.
- Medical only claims have much less impact than lost-time claims. Can you get the employee back to work before indemnity starts?
- With your broker, review open claims to ensure they are being handled properly and closely promptly.
Manage the calculation of the experience mod with your broker:
- Confirm that you are using all available, appropriate work comp classifications working with the broker, the Scopes guide and rate sheets.
- Review payroll audits to ensure that they are accurate.
- Work to get claims closed before the carrier reports information to the NCCI.
- Have your broker project your experience modification, seven months before renewal.
- Have your broker check the promulgated experience mod for accuracy. Thirty percent of all experience mods have a clerical error.
Effectively manage risk transfer through contracts
- Use well-crafted contracts reviewed by your attorney and insurance broker.
- Avoid upstream waivers of subrogation whenever possible.
- Are you sharing the risk you have assumed with subcontractors?
- Verify that your own coverage is appropriate for the work performed.
Managing your experience mod is a great business / management tool. Taking care of your people will drive down costs while improving business results. Let us know how Dominion Risk Advisors can help you take control of this cost.