There are three key factors that go into calculating a workers’ compensation (WC) premium:
- The rate assigned to each payroll classification in your business,
- The total amount of your payroll for each classification,
- Your experience modification factor.
From an employer perspective, only one of the three key factors can be managed and lowered without a reduction of your staffing needs: the experience modification factor, also known as the “mod.”
The National Council on Compensation Insurance (NCCI,) or your state department of insurance typically determines the amount of risk assigned to payroll for each classification. The amount of payroll is a variable in the premium calculations.
Employer tip: staff as needed as the Workers’ Comp premiums should not be a deciding factor when hiring someone.
As an employer, are you wondering: “How can we reduce our mod?”
First step is understanding the purpose of a mod. The mod is a numeric representation of your business claim history. It represents the last three years of claim payments that were submitted on your behalf. The mod assigned to your job classifications is a comparison of your claims record to that of all other employers in your state with the same job classification code(s).
If your claim history and claim payments are above average, your mod will be above average (1.00) and your work comp premium will be above average as well.
On the contrary, if your claim payments and claim history is below average, your mod will be lower than average and your work comp premium will be lower than average.
Here are some examples of how this works when your claims history for a job classification code is twenty percent better and when it is twenty percent worse than other employers in your state with the same job classification codes.
The wise employer will utilize one of several methods that have proven to lower the mod:
- Create a return-to-work program
- Implement and enforce an effective safety program
- Refrain from using uninsured subcontractors
- Review your job classifications to verify that every employee is properly classified
- Register to be part of a group rating
Let’s discuss these ways of lowering your mod.
A Return-to-Work Program:
A properly designed return to work program will have a great impact on your workers’ compensation cost.
When an injured worker returns to light or modified work duty, the cost of the Workers’ Comp claim can be reduced by a great amount.
One example: if an injured worker hurts their arm, and the employee’s direct report decides to deny the employee to return to work on light duty, and refuses to bring the employee back.
The injured worker’s pay is $500 per week
It will take up to 20 weeks for the employee to fully recover from the injury.
The employee’s supervisor makes the decision that they do not want to be bothered with having an employee on light duty and refuses to take the employee back on hiring terms.
The total amount of the claim will be included in the mod calculations for the next three years of premium.
If the Risk Manager has established a mandatory return to work program, the supervisor would:
Bring the employee back to work on light or modified duty during their rehabilitation period.
Save the company what would have been paid in indemnity or lost wage benefits.
And, while the injured employee may not be working at their full potential, the employee still provides value to the company and does not require training staff to cover their tasks.
However, the biggest impacts of the return-to-work program are:
The claim history is lower
The lower claim payments will be utilized in the calculation of the mod for the next three premium years.
A Strong Safety Program:
A safe workplace is key to lowering your mod. An effective safety program will result in less accidents and less injuries.
With less injuries, the claim payment history will be lower.
The lower the claim payment history, the lower the mod and the lower the work comp insurance premium will be.
If your safety program could use some help, please contact us to request our safety kit. You can also hire safety consultants who are trained to identify safety hazards. Implement the recommended safety changes and require safety training for all employees.
Refrain From Using Uninsured Subcontractors:
Failure to confirm proper WC insurance coverage is a common mistake made by employers when hiring subcontractors, especially in the construction fields. The use of self-insured subcontractors with their own WC coverage is important to the control of your mod because:
Subcontractors will be covered by your WC insurance if they do not have their own coverage and are injured while working for you.
This will increase the premium your company will owe at the year-end premium audit.
It will increase your company’s mod for the next three policy years.
It is well worth the effort to document the WC coverage of every subcontractor your company hires.
Employer Tip: Review Your Job Classifications
The overall loss experience of your company compared to the claim history of field managers in general could result in a mod factor lower or higher than it should be.
Going through the steps of carefully reviewing each employee’s classification type may result in savings to your company (or an increase in your premiums, but you avoid that whole crime called committing fraud, which is always a plus).
Become a Part of a Group Rating:
A lot of insurers will offer group rate discounts to recognized parties. The effect of the group discounts on your mod is due to most rating groups not accepting your company if your loss experience is above average.
Normally new companies are not allowed into a group rating, because you need to claim three years of loss experience to calculate the mod, it is a requirement. Before joining a group for the benefit of the group mod, be sure the group mod is lower than the mod your business by itself.
Does every company have an experience modification?
Does every company have an experience modification?
Similar to everything else in workers comp, experienced modifications vary by state. If the employer is pure self-insurance with no excess carrier and no large deductible, there is no need for an experienced mod. But, many states impose premium tax on self-insureds just like they do on regular insurance companies so the self-insured still has to track and report their loss and loss ratio. If the employer is self-insured up to a high deductible, the excess carrier will still report the loss information to NCCI and an e-mod is calculated for the self-insured employer.
Summary:
- The only real way to lower your workers’ compensation premium in many states is to lower your experience modification factor.
- The best ways to lower your mod include:
- Create a return-to-work program
- Implement and enforce an effective safety program
- Refrain from using uninsured subcontractors
- Review your job classifications to verify that every employee is properly classified
- Register to be part of a group rating
Contact Simple Work Comp and let our dedicated experts help reduce your mod today.
