1 WORKERS COMPENSATION EXPERIENCE MODIFICATION FACTOR For All That Matters
2 WHAT S A WORKERS COMPENSATION EXPERIENCE MODIFICATION FACTOR? Your Work Comp Experience Modification Factor (E-Mod) is a primary factor you can control to help lower your insurance premium. An E-Mod is a credit or debit applied to your work comp premium. It reflects your company s work comp accident history as compared to others within the same industry and state. This credit/debit could significantly change what you pay for work comp insurance. Simply speaking, E-Mods are loss prevention incentives for business owners.
3 Who Determines a Company s E-Mod? E-Mods are calculated by organizations known as rating bureaus, not your insurance carrier, and are automatically created when a business reaches an established work comp premium threshold. The rating bureau used by most states is The National Council on Compensation Insurance (NCCI); however, a number of states have independent rating bureaus. How Is the E-Mod Calculated? All states require work comp insurance carriers report the following policyholder data to designated rating bureaus: Job type or classification (class) Payrolls Work comp losses For each state, bureaus analyze reported information within every class to determine: Average losses Insurance rate The work comp loss history for all qualifying businesses is then individually compared against the average to establish each company s E-Mod.
4 How Does the E-Mod Impact a Company s Work Comp Premium? An E-Mod of 1.00 means no adjustment is performed before the insurance carrier calculates the final work comp premium. An E-Mod above or below 1.00 identifies the percentage which must be applied to the work comp premium. For example, a 1.25 E-Mod increases premium by 25% and a 0.75 E-Mod reduces premium by 25%. Companies with an E-Mod below 1.00 gain a competitive advantage due to the cost savings generated by the credit. For example, Company A and Company B run similar businesses in the same state, each having a base work comp premium of $25,000. Company A s credit E-Mod results in less work comp premium compared to Company B which has a debit E-Mod:
5 How Many Years of Work Comp Information Are Included in the E-Mod Period? Rating bureaus use three complete years of work comp loss, payroll, and class data to compute an organization s E-Mod: E-Mods are recalculated annually using updated data to reflect the new threeyear experience period: Policy Year 2014 Includes data from years Policy Year 2015 Includes data from years Policy Year 2016 Includes data from years
6 How Do Different Losses Affect the E-Mod? Work comp pays all expenses associated with your employee s injury according to the applicable state law. Rating bureaus separate benefit payments between two categories. As a business owner, it is important to understand these categories: Medical-Only A loss which only results in payments made for medical treatment Other-than-Medical A loss which includes any payment made beyond medical treatment, such as monetary wage replacement, disability, and rehabilitation Once a payment is made to cover anything more than medical treatment, the entire loss is deemed Other-than-Medical. When rating bureaus calculate an E-Mod, Medical-Only losses are reduced by 70%. Other-than-Medical losses are factored at full cost. For example: Company Y Company Z Work Comp Loss Medical-Only Losses Other-than-Medical Losses $ 500 $ 150 $ 500 $1,000 $ 300 $1,000 $4,000 Loss Amount Included $1,200 $4,000 in E-Mod Calculation Loss Amount Included in E-Mod Calculation $1,650 $5,500 How Does Frequency and Severity Affect the E-Mod? The E-Mod formula is statistically designed to achieve fairness and accountability, recognizing: 3 Occupational accidents do occur, and the larger a business becomes, the more likely an accident will take place 3 Frequency leads to severity, and numerous, lower-cost injury incidents (frequency) are a strong indicator of a larger accident (severity) potentially occurring 3 Financial incentives are powerful and encourage employers to implement long-term safety measures and manage work comp losses Therefore, the E-Mod calculation: 3 Applies added weight to a company s loss frequency 3 Places a cap on claims severity, such that one large loss does not skew the E-Mod
7 What Is the E-Mod Formula s Split Point? Rating bureaus assimilate loss frequency and severity into the E-Mod calculation through a split point. Specifically designed to limit the degree to which a severe loss impacts the E-Mod, the split point separates losses into two portions: Primary: The first $5,000 of each loss Excess: The amount exceeding $5,000 Primary loss amounts are included in the E-Mod calculation at 100%. Excess loss amounts are proportionately reduced based on the company s work comp premium size. Beginning in 2013, NCCI is progressively raising the split point in response to increasing medical costs: Effective Year and after Revised Split Point $10,000 $13,500 $15,000 plus inflationary adjustment The split point revisions may result in higher credits and larger debits. States utilizing a rating bureau other than NCCI are expected to adopt similar changes. What Are the Key Strategies for Achieving a Desirable E-Mod? 3 Strive to prevent workplace injuries through ongoing employee safety programs 3 Educate employees at all levels regarding injuries and how to effectively manage each incident 3 Implement effective return-to-work programs, which reduce the cost of wage-loss benefits 3 Report occupational accidents to your work comp insurance carrier promptly, ensuring the employee receives timely treatment to prevent avoidable medical costs and prolonged recovery periods
8 Your Insurance Carrier Matters! ACUITY is knowledgeable in every aspect of work comp insurance. We are committed to providing a broad range of professional services, helping both the policyholder and the injured worker. Our proven approaches, including the unique ACUITY M.A.S.H. program, give your injured employees the care they need while managing your company s E-Mod! Contact an agent today to learn more about how ACUITY can help your business! Information presented is a high-level summary and subject to the laws in your state. Please contact your agent for specific coverage detail. WC-617 (5-13) For All That Matters
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