What is your experience modification rate?
It is important to first state that your company's experience modification rate only applies to your workers' compensation policy. In simple terms, your "Experience Mod" compares your workers’ compensation claims experience to other employers of similar size operating in the same type of business. If you have less claims than other companies of the same size and industry you will receive a higher Experience Mod ratio. This ratio is used against your annual premium and results as a discount. Experienced companies that monitor their workers' compensation premium understand and utilize their Experience Mod annually.
Understanding your experience modification rating and monitoring it regularly is key in reducing your Workers’ Compensation costs. It is also an excellent measure of how your loss prevention and control practices stack up to others in your industry. Companies who effectively manage their Safety Programs not only understand how this works but also have assigned someone to monitor this on a regular basis. It has a direct correlation to how much you pay in Workers’ Compensation Premiums.
Reviewing your policy with your agent to confirm that your Experience Mod is taken into account when calculating your annual workers' compensation premium is always recommended.
Finding your Experience Modification RateTypically you will receive an Experience Modification Rating Sheet each year prior to your policy renewal date. If you are unclear of your companies current Experience Mod your insurance agent can help you locate this. Your Experience Mod is also listed on the declarations pages of your workers’ compensation policy
Effects outside of discounting your premium.
Many safety conscious corporations are refusing to use the service of venders or subcontractors who do not control their Experience Mod or have an experience modification in excess of the industry average.
Qualification for an Experience Mod and Calculation.
Most companies who's annual premium is in excess of $3,000 will receive an Experience
Modification Rate.
Your Experience Mod is calculated by the National Council on Compensation Insurance (NCCI) or in some states an independent agency. Your insurance agent can advise you where yours is calculated.
Each year insurance carriers report to the calculating agency your class codes, payrolls and losses for the last five years. The computing agency uses three complete years of data ending one year prior to the effective date of the rating period. For example, a rating in 2005 normally will not use 2004 but would include 2003, 2002, and 2001 in the formula.
Don’t forget about your current years claims. These usually present the greatest opportunity
for cost reductions. Remember this years claims will affect your Experience Mod next year.
Example of Experience Modification Rate applied to your premium
While the formula may appear complex, it compares your specific payrolls and losses to the industry average losses for like business of similar size. If you are at the industry average, your Experience Mod is a 1.0. If your experience is 20% better then average your Experience Mod would be a .80 or 20% worse would be 1.20.
It makes sense to reward companies that practice effective safety and claims management techniques over those who do not. In effect, the Experience Mod does just that. The example below illustrates the difference between a company with a .80 Experience Mod versus a 1.20 Experience Mod.
Examples
The type of claims you experience and what you do to control the cost of claims has a significant effect on your Experience Mod.
NOTE: If you have zero claims you have no experience going into the formula. Not many companies are that fortunate.
- Example 1
Class Code 8810 =$8.5 per hundred in payroll
Annual payroll = $800,000
Annual Workers' Comp premium = $66,000
Experience Mod= 1.20 - $13,200 (20% better than industry)
Modified Premium $52,800
- Example 2
Class Code 8810 =$8.5 per hundred in payroll
Annual payroll = $800,000
Annual Workers' Comp premium = $66,000
Experience Mod= 1.20 + $13,200 (20% worse than industry)
Modified Premium $79,200
As you can see from the above example, how you control your Experience Mod can have a big impact on your insurance premium.
How claims affect my Experience Mod
- Medical-only claims
Claims that require medical treatment only are usually less severe so employers should not be penalized when they occur. Consequently, any medical only claims are reduced by 70% before they enter the formula. You can take advantage of this by ensuring that injured employees remain at work when possible or return to work within the waiting period.
This is where an effective claims management and return to work program can have a dramatic effect. Should you need help in establishing a program, our Western National Loss Control Consultants can help. - Lost time claims
The first $5,000 of a lost time claim is counted at full value. The dollar amounts after $5,000 is discounted. There is also a large claim cap limit to protect you from a catastrophic loss. Because the first $5,000 of each loss goes into the formula dollar-for-dollar, severity is a factor. A single claim valued at $20,000 has less effect on your Experience Mod then 10 claims valued at $2,000.
Tips & Reccommendations
Claim Management
To avoid claims:
- Maintain and use an Accident Prevention Program
- Develop a site-specific safety plan for each job
- Have your company management support the Accident Prevention Program
- Have the attitude “Safety Comes First”
- Train your employees in safe work practices
- Drug testing
- Common sense
- Investigate incident immediately to avoid second occurrence
- Develop a Return to Work program. Have light duty jobs available if possible
- Get the injured worker back to work ASAP, retrain if necessary
- Manage the claims process; be proactive
- Develop a Kept-On-Salary policy
- Report all employee hours worked
- Track incidents from office personnel, field personnel, and subsidiary divisions independently
- Do not lump subsidiary companies under one EMR rate
- Take a proactive approach to training, avoidance, and claim management
- Designate a Safety Director and give that person the proper authority to affect policy, decisions, and personnel
- Work with Washington State Labor and Industries and OSHA representatives when they visit the jobsite
- Realize that the money spent now on safety can save you much more later on.
It is also recommended that companies review their losses periodically. Pay particular attention to open claims with outstanding reserves. Work with your claims administrator to bring these claims to closure. In some instances, outstanding claims may be closed resulting in reserve reductions that ultimately may affect your Experience Mod.
Resources:
The National Council on Compensation Insurance (NCCI) has published a booklet entitled “ABCs of Experience Rating”. It is available on their website at www.ncci.com. This brochure explains the experience rating plan in greater detail. Many states that use independent agencies to calculate the experience modification also have prepared brochures to explain the Experience Modification Rating Process.
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DISCLOSURE: All entries by QuoteFishing.com are for informational purposes only and it is always recommended that you consult with your local insurance agent as coverage, definitions and claims procedures may differ from state to state.
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