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0 4 Ways to Lower Your Experience Modification Rate and Why it Matters

Losses are just one factor in your overall workers’ compensation costs. The other is premium. Many calculations are involved in setting the premium; it comes down to how much of a risk the carrier thinks it is taking by insuring your company. One of the biggest components of the premium calculation is the experience modification factor, or ex mod — a perception of risk.

The experience modification factor can add up to significant dollars if it is not properly managed. Fortunately, a basic understanding of the ex-mod and a few tips can help you not only stabilize your workers’ compensation costs but lower them.

What the Experience Modification Rate Is and How it Works

When you’re making a major purchase as a consumer, companies typically look at your credit report. They want to see how much of a risk they’re taking with you, compared to others. A good credit rating close to 800 is golden; you easily get approval for purchases at the lowest interest rates. A credit rating below 500s will cause significant complications.

In the same way, the ex-mod is used as an indication of risk regarding workplace injuries. Carriers look at your company’s ‘actual incurred losses’ and compare them to those of other companies in your industry, to determine your expected losses. If your rate of injuries is higher, your ex mod will be higher, and you’ll be charged a higher premium. The reverse is true if your company has fewer injuries and fewer costs.

It boils down to actual vs. expected costs. Ideally, you want your actual losses to be lower than the expected losses: the lower your ex mod, the lower your premium.

An ex mod factor of 1.0 is average, like getting a ‘C’ on a report card. It means that your company is on par with others in your industry in terms of the number of, and costs of claims. Your goal is to be as close to your minimum experience modification factor as possible.

Tips to Change Your Ex-Mod

The best way to lower your ex mod is to reduce the costs of your losses, both frequency, and severity. Using best practices, such as effective return-to-work strategies, will lower ultimately lower the ex-mod and reduce the premium.

Here are several additional strategies that can help lower your ex mod.

1. Experience Rating Adjustment (ERA). Many states have a rule that allows a 70 percent discount on what is reported as ‘actual incurred losses’ for medical only claims.
   • Example: For a medical-only claim that costs $10,000, just $3,000 would be reported as ‘actual incurred losses.’
   • Claim total = $10,000 – 70% reduction – ($7,000) = $3,000
   • The ERA rule was devised by rating bureaus as a way to encourage reporting of smaller claims. It’s important to note that this only applies to medical only claims. Check with your state rating bureau or insurance broker to see if this rule applies in your state.
2. Net deductible. About 15 states allow companies to exclude from the ‘actual incurred losses’ any amount paid on a claim that is below the deductible amount, whatever it is. If the deductible is $5,000 and a claim costs $6,000, only $1,000 would be included.
3. Injury triage. Many injuries can be handled with self-care. There is no reason for minor cuts or bruises to become full-fledged claims. Using telephonic nurse triage can help separate insignificant injuries from those that require medical attention, meaning many can be kept off the books and not included in ‘actual incurred losses.’
4. Unit statistical date. The unit statistical date is the date your total incurred losses are reported to the state rating bureau for the calculation of your next period’s experience rating. Included in total incurred losses is BOTH what has been paid AND outstanding reserves for open claims. Overinflated outstanding reserves can make a significant difference in your total incurred losses.

Unit Statistical Date Example:

• Amount paid to date on an open claim:
  • $1,000
• Amount reserved on an open claim:
  • $50,000 due to an upcoming surgery
• Amount reported as Actual Incurred Losses to state rating bureau on Unit Statistical Date:
  • $51,000.

Over-inflated reserves:

On revisiting the claim, you find that the worker is progressing better than anticipated, and it is clear he will not need surgery. With input from the medical provider, you can determine what treatments the worker will actually need going forward. Since the surgery is no longer needed, that amount reserves could be reduced, for example, to $15,000. That $15,000 now in reserves plus the $1,000 already spent brings the total for ‘actual incurred losses’ to $16,000 — not $51,000.

The key is to identify such a change before the ex-mod is calculated. Six months prior to the policy renewal date is when the numbers must be reported in order to ensure an accurate ex mod. If the policy renewal date is Jan. 1, the unit statistical date would be July 1 of the previous year.

Conclusion

Lowering the ex-mod lowers the premium. It’s important to note, however, that the impact will not be seen immediately. When calculating the ex-mod, carriers have a three-year ‘look back’ period; meaning if the company had many losses last year but has since improved its frequency and severity rates, it will be several years before the ex-mod is lowered. Organizations that have a long-term strategy to reduce injuries, return injured workers as soon as possible, and ensure accuracy in their actual incurred losses, will see their premiums improve.

0 California Workers’ Comp Bureau Submits Lower 2020 Pure Premium Rate Filing

The Workers’ Compensation Insurance Rating Bureau of California on Tuesday submitted its Jan. 1, 2020, pure premium rate filing to the California Department of Insurance, proposing advisory pure premium rates that are an average of 5.4% less than the current average.

The WCIRB governing committee voted earlier this month to authorize the WCIRB to submit a Jan. 1, 2020 advisory pure premium rate filing to the California Insurance Commissioner that will be on average 5.7% below the average approved Jan. 1, 2019 advisory pure premium rates.

The average of the Jan. 1, 2020, advisory pure premium rates is $1.58 per $100 of payroll. If adopted, this would be the ninth consecutive pure premium rate decrease since 2015 totaling roughly 45 percent.

The proposed average decrease in advisory pure premium rates reflects continued downward loss development, acceleration in claim settlements, sharply declining pharmaceutical costs and a further decline in the number of liens being filed, according to the WCIRB.

In the filing, the WCIRB also noted that factors such as increases in cumulative trauma claims, rising claim severities and continued high levels of allocated loss adjustment expenses are moderating the pure premium rate declines and warrant continued monitoring.

Once the CDI schedules a public hearing to consider the filing, a notice of proposed action and notice of public hearing will be issued.

0 Liberty Mutual accused of inflating comp premiums

Liberty Mutual Insurance Co. is facing a putative class-action lawsuit filed by a former workers compensation client that alleges the insurer unlawfully overcharged for workers compensation insurance.

The lawsuit, Valley Container Co. v. Liberty Mutual Inc., was filed Tuesday in the U.S. District Court for the District of Massachusetts in Boston, alleging claims of breach of contract and unjust enrichment, as well as violations of the Racketeer Influenced and Corrupt Organizations Act and Massachusetts laws.

The complaint alleges that Boston-based Liberty Mutual and its affiliates “systematically, willfully and unlawfully” overcharged companies in at least 35 states for workers compensation insurance and engaged in misconduct by “knowingly” violating laws governing workers comp insurance in those stated, “directly resulting in excessive insurance premiums being charged” to customers.

According to the complaint, an employee of Bridgeport, Connecticut-based Valley Container Co. suffered a workplace injury, and the subsequent workers compensation claim, valued at approximately $47,000, was accepted by the company’s comp insurer, Liberty Mutual. Valley Container alleges that Liberty Mutual recovered all but $120 on the claim from a third-party lawsuit but failed to report the recovery to the Boca Raton, Florida-based National Council on Compensation Insurance. As a result, the experience modification rating used to determine Valley Containers’ premium in 2014 and 2015 was artificially inflated, and Liberty Mutual failed to reimburse the company for the excess premium, the company alleged in the complaint.

Valley Container also accuses Liberty Mutual of taking advantage of its relationship with NCCI to “defraud employers and obtain and retain greater premium amounts” in the states where the NCCI is the designated rating and statistical organization, by purportedly taking advantage of NCCI’s “lack of oversight and diligence” and “inaccurate data” to calculate premiums.

A spokesman from Liberty Mutual said the company does not publicly discuss litigation.

0 California Workers’ Comp Institute Summarizes 2019 Legislation

0 Workplace Quality, Not One Factor, Determines Worker Health, Job Safety: Study

0 California contract worker bill could bring employers lawsuits, fines for misclassifying workers

Reduce Your Workers’ Compensation Premium
&
Experience Modification Rate

A California bill that is likely to become law could be enforced through fines and lawsuits against employers that improperly classify workers as contractors instead of employees.

That is according to North Bay labor attorneys who say if Gov. Gavin Newsom signs the bill, Assembly Bill 5, companies large and small will need to carefully scrutinize how they classify and pay their workers when it takes effect Jan 1. Newsom previously expressed support for the bill in a newspaper editorial and seems likely to sign it into law.

The bill codifies a landmark California Supreme Court decision from last year establishing a three-part test to determine if workers are employees or contractors. That matters because the goal of the bill and that decision is to end employers’ misclassifying workers as contractors to avoid paying them benefits and covering other employment-related costs.

Contractors are much cheaper and the bill will force many employers to decide whether to take on the costs of current contractors as employees or let them go.

The bill has passed the state Assembly and Senate earlier this week and was headed to Newsom’s desk as of noon Sept. 13.

If a worker does not satisfy all three steps, they would be considered employees and treated as such under the law.

“I really think that it’s important for employers to consult attorneys,” said Rachael Mache, a civil litigation attorney at Beck Law P.C. in Santa Rosa who represents employers and employees in labor disputes. “A misclassification lawsuit can be very, very expensive.”

Mache said the responsibility to properly classify employees falls on employers. She added that one way the potential law will be enforced is through workers bringing complaints to the state or in court. They can bring a complaint to the Labor Commissioner’s Office or litigate a claim in court.

She noted AB 5 creates civil penalties for businesses of $5,000 to $25,000 per willful violation of worker classification.

Mache said she has already begun sitting down with existing clients to comb through their employment rolls ahead of the possible signing of the bill to ensure they are toeing the legal line ahead of time and not misclassifying workers.

And attorneys, not just employees, will have incentive to bring cases on behalf of employees according to Scott Lewis, a labor lawyer at Perry, Johnson, Anderson, Miller & Moskowitz LLP in Santa Rosa.

He noted that generally speaking the California labor code allowed employees bringing a successful legal action to have their attorney’s fees paid for by an employer, incentivizing suits on the part of lawyers.

Lewis also noted however that many misclassified employees currently may be benefiting from being treated as a contractor when they are really an employee under the impending law.

“It’s a two-way street,” he said. “There’s a lot of times when an employee wants that relationship and an employer wants that relationship.”

Lewis noted that employers avoid paying taxes and deductions among other costs with contractors. Employees can benefit through increased flexibility and other freedoms.

But those illegal working arrangements can come to a crashing halt if the contract worker experiences an accident or gets injured while at work and isn’t covered by worker’s compensation insurance.

“Their first stop is to go to the (California Employment Development Department) with a claim” Lewis said. He noted the lack of insurance means the money would have to come out of the employer’s pocket, “just like if you don’t have insurance for a car accident.”

An ongoing friction point between the bill’s author and businesses has concerned professions that do not want to be called employees and who value their contractor status, feeling they are not being exploited.

And whether the bill applies to a person largely depends on what industry they work in.

Many professions received exemptions from AB 5 as it moved through the state legislature, allowing them to be held to the previous standard that makes it easier to classify people as contractors.

Those professions include include physicians, surgeons, dentists, podiatrists, psychologists, veterinarians, lawyers, architects, engineers, private investigators, travel agents, graphic designers, grant writers, fine artists, and many more.

Perhaps the largest row has been the bill’s author’s refusal to exempt drivers for apps Lyft and Uber, classifying them as employees entitled to benefits.

During a press conference last week an Uber representative said the company would not classify drivers as employees, adding the company did not fear litigation.

Lewis said the situation with Uber could be ripe for a class action lawsuit if drivers band together and bring the case to federal court.

Under AB 5 the California Attorney General’s office could also bring suits on behalf of wrongly classified employees as could a city attorney of a city having a population in excess of 750,000 people.

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0 Employers scramble after payroll company allegedly diverts $35 million from employees

Reduce Your Workers’ Compensation Premium
&
Experience Modification Rate

The FBI is investigating a payroll company that abruptly shut down, leaving more than 250,000 employees across the country without paychecks. New York state-based MyPayrollHR allegedly diverted an estimated $35 million from employee checks and accounts.

MyPayrollHR and its CEO, Michael Mann, haven’t returned calls to CBS News. But a business partner for the company, Cachet Financial Services, claims it is a victim of fraud by MyPayrollHR and that Mann or someone at the company manipulated account numbers and moved workers’ money into a personal account.

It left many accounts with negative balances, and employers scrambling to pay workers.

“It hurts,” Tanya Willis said. “This isn’t something that we were prepared for.”

Willis says her animal rescue shelter is nearly at a stand-still after the payroll company shut down. 

“All of their phone lines were down and all of their social media accounts were wiped off,” Willis said.

Last week, some of Willis’ employees frantically called after finding recently deposited paychecks just vanished from their accounts.

The AP says Willis is one of about 5,000 business owners scrambling to pay workers, after a business partner to MyPayrollHR said the company diverted the estimated $35 million from employee accounts. Some accounts had multiple withdrawals, leaving many employees with negative balances.

Willis says one of her employee’s accounts was overdrafted nearly $1 million. 

“She had less than a thousand dollars in that account so we want to know how is that even possible?” Willis said.

Willis’ shelter rescues about 200 dogs a year, but she can’t take in any more until they get the money back to fund it. 

“I hope there’s a better answer other than somebody intentionally stole money and ran away with it,” Willis said. “I hope there’s a better answer, but right now I just can’t think of one.”

The FBI is asking for more potential victims to come forward.

0 A few items to consider for a guaranteed cost workers’ compensation policy

Reduce Your Workers’ Compensation Premium
&
Experience Modification Rate

• Inaccurate Experience Modification Rate – When a claim is mishandled and more dollars are spent the claim than should be the EMR or Experience Modification Rate will be higher that it should be resulting in an incorrect higher premium being paid by the employer.
• Loss of Schedule Rating Credit – Insurance carriers look at loss history like you look at your check book! They pay very close attention to claims and the amount of dollars going out. Whether it’s their company or not, loss histories paint the potential profit picture of any employer. So when claims are incorrect and extra dollars are picture is not pretty. Claims have a negative effect on the way an insurance company looks at the employer from a risk stand point. Schedule credits may be removed, reduced or not applied at all. And this will have a direct effect on the premium the employer pays.
• Loss of Acceptability into Preferred Programs – When it comes to pricing workers compensation policies insurance carriers typically have multiple pricing tiers filed with the states where they conduct business. These pricing tiers provide multiple levels of rates at an underwriters disposal. You’d be surprised at the difference in rates between some carriers preferred tier compared with their standard tier. Think 20-50%! Each tier will have certain underwriting criteria requirements in order to qualify. Poor loss experience through poor claim handling can mean that an employer will not qualify or maybe no longer qualify for preferred pricing. This can have a significant impact on the premium an employer may pay.

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0 Tips to Change Your Ex-Mod

Reduce Your Workers’ Compensation Premium
&
Experience Modification Rate

The best way to lower your ex mod is to reduce the costs of your losses, both frequency, and severity. Using best practices, such as effective return-to-work strategies, will lower ultimately lower the ex-mod and reduce the premium.

Here are several additional strategies that can help lower your ex mod.

1. Experience Rating Adjustment (ERA): Many states have a rule that allows a 70 percent discount on what is reported as ‘actual incurred losses’ for medical only claims.

Example:  For a medical-only claim that costs $10,000, just $3,000 would be reported as ‘actual incurred losses.’

Claim total = $10,000 – 70% reduction – ($7,000) = $3,000

The ERA rule was devised by rating bureaus as a way to encourage reporting of smaller claims. It’s important to note that this only applies to medical only claims.  Check with your state rating bureau or insurance broker to see if this rule applies in your state.

2. Net Deductible: About 15 states allow companies to exclude from the ‘actual incurred losses’ any amount paid on a claim that is below the deductible amount, whatever it is. If the deductible is $5,000 and a claim costs $6,000, only $1,000 would be included.

3. Injury Triage: Many injuries can be handled with self-care. There is no reason for minor cuts or bruises to become full-fledged claims. Using telephonic nurse triage can help separate insignificant injuries from those that require medical attention, meaning many can be kept off the books and not included in ‘actual incurred losses.’

4. Unit Stat Date: The unit statistical date is the date your total incurred losses are reported to the state rating bureau for the calculation of your next period’s experience rating. Included in total incurred losses is BOTH what has been paid AND outstanding reserves for open claims. Overinflated outstanding reserves can make a significant difference in your total incurred losses.

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0 4 questions to help reduce workers’ compensation premiums

Reduce Your Workers’ Compensation Premium
&
Experience Modification Rate

Accuracy First & Foremost

In another case, a mechanical contractor enrolled for 5 years in a guaranteed cost workers’ compensation program with $300,000 in annual premium saw its experience modifier escalate from .91 to 1.08, which resulted in the contractor being excluded from bidding on projects that had an Experience Modification Rate (EMR) prequalification factor that required the bidders to have an EMR of 1.0 or less.

The company’s insurance carrier had not performed the proper analysis, and inaccuracies in the reported payrolls from a wrap-up carrier, as well as claims which were previously improperly assigned were identified. The payroll errors were corrected, and four claims were removed successfully from the calculations, resulting in a drop of the experience modifier to .89. The change led to a 19-percent premium reduction and allowed the company to bid on projects with a prequalification standard of 1.0 or less. The proper process ultimately resulted in an annual premium savings of $57,000.

A Critical Process

Despite its importance to insurance costs, the experience modifier calculation often lacks transparency. This is partly because many companies do not actively participate in the process, choosing instead to rely on behind-the-curtain calculations conducted by their broker, the National Council on Compensation Insurance (NCCI) or state rating bureaus.

To start, here are a few important questions that every construction company should be able to answer on its own:

1. Are you sure the data and information used to calculate your experience modifier is accurate, especially if you have participated in wrap-up programs?
2. Do you understand how your experience modifier stacks up against your industry peers?
3. Do you know what is currently driving your experience modifier, and do you have a plan to improve it?
4. Have you evaluated the opportunities that exist to improve your experience modifier, and calculated the potential dollar savings available?

Some insurance brokers simply may ask insurance carriers for workers’ compensation quotes, which allows the carrier to dictate pricing. However, completing a comprehensive evaluation of exposures before submitting information to underwriters will help a construction firm take control of its workers’ compensation claim drivers and total cost of risk.

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