Unlock Workers’ Comp Savings with Experience Modification

Unlock Workers’ Comp Cost Savings with Experience Modification (E-Mod) | Property & Casualty

For many employers, workers’ compensation insurance is all about one number – the premium quoted. Understandably, companies want to pay the lowest amount possible for this mandatory coverage. Understanding how your experience modification (E-Mod) affects your premium can make a significant difference. Lowering your E-Mod through targeted improvements in safety, hiring, return to work and other areas will ultimately improve both your direct and indirect workers’ compensation costs.

Workers’ compensation goes beyond just the price tag. Analyzing your E-Mod can unveil hidden areas of concern in your operations and ultimately lead to additional cost savings.

What is an Experience Modification (E-Mod) Rating?

The E- or experience modification factor (EMF), is a numerical representation that reflects an employer’s historical past workers’ compensation claims experience relative to other employers of similar size within the same industry. It serves as a quantifiable assessment of an employer’s safety record and risk profile within the context of their workers’ compensation insurance coverage.

An employer’s workers' compensation insurance premium is partially determined by the EMF. To be eligible for an experience modification rating, an employer needs to meet the minimum threshold for workers' compensation, which varies by state. Once the threshold is met, the EMF becomes mandatory in calculating the premium.

Who Calculates an Experience Modification (E-Mod) Rating?

The National Council on Compensation Insurance (NCCI) serves as the primary rating bureau for the collection and analysis of workers' compensation data in most states. However, in the 11 states not covered by the NCCI, an independent agency will ascertain the experience modification rate. In cases where businesses operate in multiple states, an interstate modifier will be employed.

What Does Your E-Mod Reveal?

Although the E-Mod is a singular numerical value, examining the function of your payroll and claims loss data within the experience-rating formula can yield valuable insights. The e-Mod calculation varies by state but generally depends on these components:

  • Losses incurred during the three preceding policy periods, excluding the most recent policy period.
  • Projected losses derived from payroll expenses and industry-specific projected loss rates.
  • The amount of each loss (e.g., its severity)
  • If there is a medical loss that does not result in temporary or permanent disability.
  • Ballast and weighting values published by the National Council on Compensation Insurance (NCCI)

In the E-Mod calculation, the utilization of loss and payroll data from a three-year experience rating period is customary. It is important to note that only audited workers’ compensation policy periods are considered in the calculation of the E-Mod factor. Therefore, when calculating the E-Mod factor on Jan. 1, 2024, data from the previous year is not considered. The data used is:

1/1/2022– 1/1/2023

1/1/2021 – 1/1/2022

1/1/2020 – 1/1/2021

Many employers are aware that their Experience Modification Rate (E-Mod) has an impact on their insurance premiums, but often lack knowledge about potential strategies to reduce their E-Mod and overall insurance costs. Implementing certain cost-cutting measures can provide a fresh perspective on workers' compensation insurance.

The Power of Conducting an E-Mod Analysis

Understanding the intricacies of the E-Mod can be challenging, however, leveraging analytics to demonstrate the impact of E-Mod on your business can offer a competitive advantage and substantial cost savings.

The initial phase of the analysis involves gaining an understanding of the potential reductions for your E-Mod and corresponding premium. It is essential to determine your organization's "loss-free" mod, which represents the mod value in the absence of any losses. This figure is distinct to your organization, an achievable objective and one to actively pursue.

If you are curious about your competitor’s workers' compensation coverage costs, refer to the "expected" losses section on the E-Mod worksheet. This section presents the average losses incurred by companies with a comparable payroll. By reviewing this information, you can assess your standing in comparison to others.

When a company experiences numerous losses, regardless of their magnitude, its experience modification rate (E-Mod) is likely to be significantly affected. This outcome often highlights the presence of safety training or cultural concerns that need to be addressed. If a company's frequency ratio reaches or exceeds 1.0, it’s crucial to allocate resources toward enhancing its safety program.

Determining whether you have a severity issue or a problem with not containing losses to medical only, is an important aspect to consider. Identifying such issues often presents an opportunity for cost reduction and highlights the necessity of establishing or enhancing a return-to-work program. The reduction in manpower resulting from workplace injuries directly impacts the financial performance and profitability of your business.

Utilizing analysis, your E-Mod provides insights into your business's past performance and offers potential avenues for improvement. Specifically, an analysis will:

  • Estimate and forecast expenses related to the E-Mod calculation.
  • Identify opportunities for improvement.
  • Examine the implications of each loss in relation to its corresponding impact on E-Mod points and insurance premiums.
  • Insights into cost drivers and the influence of the E-Mod.
  • Focus on problem areas, specifically addressing the frequency or severity of injuries.
  • Examine loss trends for types of injuries, departments and other relevant factors.
  • Identify areas to target with loss control and risk management strategies.

We’re Here to Help Lower Your Workers’ Compensation Costs

Utilizing an E-Mod analysis can assist in formulating a well-defined approach to mitigating high-cost losses and addressing specific areas of concern, such as injury types, affected body parts, company locations and other relevant data. For further information, connect with a member of our team.

Unlock Workers’ Comp Cost Savings with Experience Modification (E-Mod) | Property & Casualtyhttps://www.cbiz.com/Portals/0/Images/GettyImages-1413226793-1.jpg?ver=dEMdiCFec1V87TUPLNYp4Q%3d%3d~/Portals/0/PackFlashItemImages/WebReady/experience modification.jpgSlash workers' compensation costs with an Experience Modification (E-Mod) analysis. Uncover strategies to minimize expenses in your organization's workers' compensation program. 2023-08-23T17:00:00-05:00

Slash workers' compensation costs with an Experience Modification (E-Mod) analysis. Uncover strategies to minimize expenses in your organization's workers' compensation program. 

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