For many employers, workers’ compensation insurance is all about one number – the premium quoted. Understandably, employers want to pay the lowest amount possible on this mandatory coverage. Knowing how your experience modification (E-Mod) affects your premium and how 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.
There’s much more to workers’ compensation than price. An analysis of your E-Mod can identify problem areas in your operations and ultimately lead to additional cost savings.
What does your E-Mod reveal?
While the E-Mod itself is a single number, an analysis of how your payroll and claims loss data functions in the experience-rating formula can provide valuable insight.
E-Mod calculation varies by state but generally depends on these components:
- Actual losses from the three prior policy periods, not including the most recent policy period
- Expected losses based on payroll and expected loss rates for the industry
- The amount of each loss (i.e., its severity)
- Whether the loss is medical only, without temporary or permanent disability
- Ballast and weighting values published by the National Council on Compensation Insurance (NCCI)
Generally, the E-Mod calculation uses loss and payroll data from a three-year experience rating period. The E-Mod includes only audited workers’ compensation policy periods. For an E-Mod factor calculated on Jan. 1, 2020, data for the previous year is excluded. The data used is:
- 1/1/2018 – 1/1/2019
- 1/1/2017 – 1/1/2018
- 1/1/2016 – 1/1/2017
Most employers realize their E-Mod affects premiums in some way but often don’t know what actions they can take to lower their E-Mod and insurance costs. There are some cost-cutting concepts that could put workers’ compensation insurance in a new light.
Why conduct an E-Mod analysis?
The E-Mod is complex, but when you use analytics to show what effect the E-Mod has on your business, you will gain an edge over your competitors and ultimately save a lot of money.
An analysis should start with understanding how low your E-Mod (and associated premium) can be. Your “loss-free” mod – what the mod would be if there were no losses at all – is a number unique to your organization, an attainable goal and something you should shoot for.
You may wonder what your competitors pay for workers’ compensation coverage. To answer that question, look at the “expected” losses portion on the E-Mod worksheet. This portion reflects the average losses for a company with a similar payroll. How do you stack up?
If you have many losses, even if they are minor, they will impact the E-Mod more than if there were fewer severe losses. This problem often points to some sort of safety training or cultural issue that needs to be addressed. If your frequency ratio is 1.0 or higher, your safety program needs attention.
Determining whether you have a severity issue, or a problem with not keeping losses medical-only, is another area to assess. This almost always points to an opportunity for cost savings and often the need to establish or improve a return-to-work program. Losing manpower from injuries on the job directly affects your business’ earning power and bottom line.
With the help of analysis, your E-Mod tells a story about where your business has been and what it can do to improve. Specifically, an analysis will:
- Calculate and project costs associated with the E-Mod
- Identify opportunities for improvement
- Analyze what each specific loss costs you in terms of E-Mod points and premium
- Reveal cost drivers and the impact of the E-Mod
- Focus on problem areas, such as frequency or severity of injuries
- Examine loss trends for types of injuries, departments and more
- Isolate areas to target with loss control and risk management strategies.
An E-Mod analysis will help you set a clear strategy to lower the most costly losses or target problem areas, whether they’re associated with a certain type of injury, body part, company location or other data. To learn more, contact your local risk and insurance professional or a member of our team.
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