Workers’ compensation insurance can be a significant percentage of your total insurance cost. But there are ways to help reign in those costs. Workers’ compensation premium is based on a business’ experience modification (E-Mod) rating, which is a rating that businesses can influence. Understanding the factors that go into the rating can help you best manage your work comp costs.
Your E-Mod is calculated using three years of payroll, loss data and classification codes (used to differentiate various job duties done by employees in an industry), excluding the most recent expired policy year. While it will take time to improve your E-Mod rating, there are ways to do so through targeted improvements that will positively influence your work comp costs.
- Validate E-Mod rating worksheet data. Both calculation errors and data-reporting mistakes are sometimes made on your E-Mod rating worksheets, and they can be costly. In fact, we have found errors in over 50% of the E-Mod rating calculation audits we’ve conducted. Typical issues include higher payrolls that did not get fully captured in the calculation (but all of the losses are captured), classification code errors, losses from a different employer inaccurately coded to you, claims listed as open that are really closed, claims closed at a lower amount, etc. Knowing how to identify these errors and getting them corrected can ensure an accurate E-Mod rate.
- Manage claims. Active participation in post-claims management by HR personnel and your broker or agent is necessary. Pay attention to reserves on open claims. Open claims count as an “actual” loss so it’s important to close claims as soon as possible. You should also make sure your reserves are not set higher than necessary; ask your insurer to justify the number and adjust if appropriate. When you close claims quickly, you get the lowest possible claim value in the E-Mod rating calculation without overstated reserves.
- Communicate regularly. For any workers’ compensation claims, you should have ongoing communications with the injured employee and your workers’ compensation claim adjustor. This will help you fight for the best claim outcome. Remember to pay attention to indemnity payments and monitor the progress of claims. Your objective is to return the employee back to work, support their full recovery from injury and close the claim as soon as practicable.
- Develop a return-to-work program. Returning your employee to work as quickly as possible is statistically proven to reduce the overall loss. By offering modified or light-duty work accommodations you can avoid indemnity (lost time) payments. In addition to boosting the injured worker’s morale, it enables them to return to their normal job more quickly. Another benefit is reduced turnover and the ability to retain experienced workers. Remember, a medical-only claim (meaning the employee doesn’t miss any work time due to the injury or returns to work within the state waiting period), only 30% of the claim costs are included in the E-Mod calculation.
- Create a safety program. A safety program is one of the best ways to reduce the potential for accidents and therefore claims. It should comply with the Occupational Safety and Health Administration (OSHA) and be integrated into daily operations with the goal of accident prevention. A solid safety program should also document safety protocols, education and training requirements. Depending on your state, you may earn a discount or a premium credit for implementing a formal safety plan.
- Investigate every accident. Ensure that your safety committee investigates every accident, even first-aid only incidents, to identify the root cause. If you don’t know what went wrong and why, efforts for improvement could be fruitless. By determining the specific hazards that trigger accidents, you can implement methods and procedures to prevent future losses. Accident documentation is also helpful in spotting specific trends that may call for additional training or safety protocols to be implemented.
- Require employee safety training. Make sure employees are trained on their responsibilities for safety and know how to enforce violations. Implementing safety training and education is an effective way to reduce losses, positively impacting your E-Mod and workers’ compensation premium.
- Conduct pre-employment screening. Hiring practices can also play a big role in preventing future workers’ compensation claims and therefore losses. Employment physicals and post-offer medical questionnaires provide an assessment of the applicant’s or employee’s physical abilities and identify any pre-existing conditions. These should be used to determine their ability to perform a job so you aren’t putting them in a role they’re not physically capable of performing. Pre-hire and post-accident drug testing is also recommended. By implementing hiring practices that ensure candidates are an appropriate match for the responsibilities, you can help prevent injuries.
- Complete a job safety analysis. When you perform a detailed analysis of specific job tasks it can help reduce the risk of injury. The analysis should break a job task down into steps, identify potential hazards within each step and recommend ways to prevent injuries. Common hazards include:
- Trip hazards
- Pinch points or unguarded equipment
- High heat or cold exposure
- Loud noises
- High vibrations
- Fumes or other harmful substances
- High lifting loads
- Poor lighting
- Pay costs of minor first aid out of pocket. If allowable in your state, you may want to consider reporting the accident “for information only” as a precaution but absorb the cost of small, medical-only claims. This will reduce the frequency of claims in your loss experience, which positively impacts your E-Mod rating and workers’ compensation costs.
Knowing how your E-Mod rating impacts your workers’ compensation premium is the first step to controlling your workers’ compensation costs. Understanding how your E-Mod is calculated will allow you to continually work to improve the factors that influence the calculation. To learn more, contact your local risk and insurance professional or a member of our team.