In 1908 it was the federal government that established a worker's compensation program for its civilian employees. It took a while for all 50 states to follow suit.
But by 2015, thanks to both state and federal worker's compensation laws covered around 135.6 million employees. Total payroll in wages paid to covered workers totaled $7.2 trillion dollars.
Employers are expected to pay premiums on worker's compensation. The experience modification rate (EMOD) can greatly impact the premiums an employer pays.
And there are ways you can lower your worker's comp MOD rate. If you're looking to learn how then keep reading.
We're sharing with you 10 ways to lower your experience modifier rate.
What an EMOD Is
The EMR worker's comp rate is a rating factor that is applied to all experience-rated workers' compensation policies. It's based on the thought that employers are charged a premium that reflects their risks.
And the mod rate is based on comparing employers within the same industry group. HVAC companies are compared with other HVAC companies. Bakeries are compared with other bakeries.
The EMOD Is Compared and Averaged According to Industry
The loss experience within each group is then averaged and compared to each employer's loss experience. This way an experience modifier is more accurately calculated for each employer.
Those employers with fewer losses are rewarded with lower premiums. Those with higher claims can end up with such high premiums that it can place a huge financial strain on a business.
How the E Mod Is Calculated
The worker's comp mod rate is calculated by considering the following information:
- Employers claims (both paid and reserved)
- Size of business
- Classification of the business
These factors help establish what an employer's expected losses for the year will be. Those expected losses are then compared against actual losses.
Actual Losses Multiplied by Expected Losses
The actual losses are taken from a three year period of time, known as an experience period. The rate at the end is presented as a factor with a neutral of 1.00.
The coverage paid by an employer is derived from taking the employer's premium multiplied by the EMR. Anything above a 1.00 is a debit factor. Anything below 1.00 known as a credit factor.
Example of Credit Vs Debit Factor
For a bakery filing no claims during their experience period with an Emod rate having a credit factor of 0.90 and an unmodified premium of $100,000, the modified premium would be $100,000 x 0.90 = $90,000.
For a bakery with the same payroll and unmodified premium amount who has filed claims during their experience period with an EMR debit factor of 1.50, that bakery's modified premium would be $100,000 x 1.50 = $150,000.
How to Tell if your MOD Rate Is High
The industry average is always 1.00 so anything over that number is considered high. However, you can also compare yourself against the best performers within your industry, which, if they have very low mods, that would be a 1.00 could actually be considered a high workers comp mod rate.
You should also do a comparison of your own ratings over the year. That's because no two employers will ever share the same experience.
If your rates are lowering due to implementing new safety programs and you're now enjoying a credit mod, you're improving.
How to Lower Your EMR Workers Comp Premiums
1. Net Deductible
Unfortunately, only 15 states will allow a company to exclude from actual incurred losses amounts paid on claims that are below the deductible amount.
That means if a deductible is $6,000 and a claim costs $7,000, only $1,000 is included.
2. Unit Statistical Date
The date you report your total incurred losses to the state rating bureau is known as your unit statistical date. This goes to calculate your next period's experience rating.
What is included in that rating is what has been paid and any outstanding reserve for open claims you have. You can make a difference in your total incurred losses if you have overinflated outstanding reserves.
3. Injury Triage
Thankfully, many injuries don't require seeking medical care. A minor cut or bruise doesn't need to become a claim.
By using telephonic nurse triage, it helps separate claims where medical attention is required from those where only self-care is necessary. That way, minor injuries can be kept from being official claims meaning they don't need to be included in actual incurred losses.
4. Experience Rating Adjustment (ERA)
In many states, there's a rule allowing for a 70% discount on anything reported as actual incurred losses for medical-only claims. If a medical-only claim costs $20,000, only $6,000 is reported as actual incurred losses.
Check if your state has this rule. And remember that it only applies to medical-only claims.
5. Immediately Implement an Out-of-Service Policy
You can implement this policy in two ways:
- Always repair or replace any defective equipment immediately
- Place a wire-tie and "out of service" card in every paycheck
- Immediately dismiss anyone for violating the tag-out policy
These policies help ensure your employees stay safe, which helps you avoid having to make a claim in the first place.
6. Train Every Crew Foreperson on Every Jobsite
Your crew foremen and women represent you at every job site. That means they need to be trained to think and act as if they're you. You can do this by implementing these policies:
- Make safety, quality, and productivity everyone's priorities
- Make sure these priorities are printed everywhere from your business checks to your job signs so everyone is aware
- Allow forewomen and men to spend money as needed on material, equipment, and labor without needing your permission first
Place trust in the people you hire to act as if they are you. That means educating them on how seriously you take protecting the crew and the future of your company.
7. Gather Up Your Entire Team Each Month to Talk About Workplace Safety
Hold a meeting or lunch for your entire workforce once a month to review safety matters. Quickly review everyone's positions in less than 15 minutes.
Make sure everyone is aware that "safety first" isn't just a motto, it's how you do business. Enforce it by making it a condition of employment.
Let Everyone Speak Up While You Listen
Invite and allow anyone and everyone to speak up about how safety conditions can be improved. Then listen and implement those ideas.
Think about adopting a profit-sharing plan in your business. This will help ensure that your equipment, tools, and workforce last longer and produce better work.
Get Help Lowering Your Premiums
Another way to lower your EMOD is by working with the right insurance company. We can help.
We'll help you find the right coverage for your needs. Click here to learn about our business insurance solutions.
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