The Workers Compensation Experience Rating Modifier
e-Mod, experience rate, experience rating factor, rating modifier are all terms that describe a factor that is applied to all Workers Compensation policies above a certain premium threshold – typically $3,500 of annual premium and above.
So, What is the Experience Rating Modifier – Which We’ll Call the Mod?
The mod is a factor applied to an employer’s premium to reflect their loss experience over the past several years. Its intent is to impute some balance or fairness to the Workers Compensation system so that employers with a lower loss rate then their peer group pay less (through a credit modifier), and employers with loss rates higher than their peers pay more (through a debit modifier).
What is Important to Know or Understand About the Mod?
The whole discussion around the mod does not have a lot of bearing unless you have substantial workers compensation premiums – typically more than $25,000 per year. It’s at this level that the modifier can have a significant enough impact to create motivation for change. The other reason for understanding this whole thing is because the error rate at which the modifiers and policies are issued is extremely high. One consultant I know estimates the error rate at over 90%!
How is the Modifier Calculated?
First, the modifier is not calculated by your insurance company, it’s calculated by a state or national bureau depending on the state you’re located in. Most states subscribe to the NCCI (National Council on Compensation Insurance) model, but then there are states like New York which have the modifier calculated by the Compensation Rating Bureau. Even if your state has its own bureau, they follow the same or similar methodology as the NCCI which is to take the payroll and loss information (broken down by rating classifications) for three of the prior four years (not using the most recently closed policy year) and run it through the calculation.
I often tell people that the actual calculation is like sausage – it tastes great but you don’t want to know how it’s done! Just know that your claims are measured against what “expected claims” should be based on the size of your company which is gauged by your payrolls. The final result is a number, and as mentioned it could be expressed as a credit factor .99 or less, it could be 1.0 which is called the unity modifier which is used for companies just starting out, or it could be 1.01 or higher which is called a debit modifier.
Many employers just accept the modifier as it is on their policies. They may assume that their broker has reviewed the modifier, or think it’s not a big deal, but as I mentioned, it can be a big deal adding thousands of dollars to your premiums and it is often calculated incorrectly. In addition, most brokers do not possess the skills or resources necessary to perform an audit, so it’s likely that your broker is not performing this critical function for you.
An audit of your modifier can be very revealing in a number of ways and helps you gain control and develop strategies to help reduces costs. Here are some good reasons why auditing your modifier may be a good idea for your company:
- If your premium is over $25,000 and you have a debit modifier each percentage point can add significant dollars to your annual premium. Unchecked over several years this could be very significant. As an example an employer paying $175,000 of premium which has a modifier that is incorrect by 5 points may have overpaid in excess of $25,000 over the past three years!
- If you are a contractor and have a mod over 1.00 you may be disqualified from bidding on some public work as well as larger private jobs because the owner or municipality believes you operate an unsafe business. You also place yourself at a competitive disadvantage compared to your peers.
- Fixing your mod in the past can result in a refund for at least the past three years, maybe more. And, by fixing it now, you set the record straight for this policy term and into the future, further saving you money.
- An audit will also give you a very strategic view of worker injury risk and what losses are actually costing your company. Here’s what we mean:
- Without the insight of an audit you are running somewhat blind on the true costs of workers comp and the indirect costs of worker injuries.
Our audit will show you what each employee injury has cost in the form of additional premiums over the past three years. New York employers we work with are often shocked to learn that a $500 claim actually cost $1,200 in additional premiums! Or that a $5,000 claim cost them $11,000! It’s often said that in workers compensation insurance, the insurer actually doesn’t pay the claims – they only front the money and you pay them back over time, through the experience rating mod; and it’s true in many cases below $10,000. An audit will also show you what the minimum mod could be for your company with no losses. Once that is known and compared to where you are today, it’s easier to understand how much money you may be wasting on “extra premiums”. For us, the audit goes beyond just fixing rating errors, it opens the door to uncovering underlying claim issues and frictional risk issues within your company. Our deep domain expertise in worker injury risk is here to help craft strategies and solutions to those issues so that your company can gain control, reduce costs and improve productivity.
How Much Does an Audit Cost?
Many worker comp experience mod audits are conducted by consultants who work on a contingency basis. The good news is that they do the work and they only get paid if they find errors, and they work pretty hard to find the errors so they get paid! The bad news is that they take 50% or more of the savings. While they will say that any money coming back to the employer is like “found money”, I’m not sure I agree with that model. That’s why we will run an initial test based on preliminary information for free as an introduction to our firm. If you like what you see and you’re willing to engage us further as your broker we can complete a full scale audit and return 100% of the savings back to you. If the time isn’t right to engage us as your broker we would understand and gladly refer you to a competent consultant who we feel can complete the engagement with and provide them our records.
Helping New York Businesses with Workers Compensation Mod Audits
Since 1929, The Coyle Group has been serving New York businesses with Workers Compensation Mod Auditing in the Rockland County communities of: New City, Nanuet, Haverstraw, Pearl River, Stony Point, Suffern, West Nyack, Congers, Valley Cottage, Nyack, Orangeburg, Blauvelt, Palisades, and Chestnut Ridge; the Orange County communities of: Goshen, Pine Bush, Middletown, Newburgh, New Windsor; the Westchester County communities of: White Plains, Yonkers, New Rochelle, Bedford, Elmsford. And in New York City – Manhattan, Bronx, and Brooklyn.
For more information on our Workers Compensation Mod Audit Program, please contact us in New City by calling 845-634-3606.