Workers Compensation – Service and Experience Matter

Words: Jack WestSome mason contractors think of workers compensation insurance as a commodity. By taking this approach, they may actually experience increased premiums or even be unable to obtain a policy in the standard marketplace. The resulting financial impact could cause the business to lose its competitive edge through price increases to consumers and the inability to offer competitive benefits and wages to employees. Even though workers compensation may look the same regardless of where it is purchased, the insurer can add value by helping policyholders understand how to manage their workers compensation costs. Service and experience matter! To help control workers compensation costs, it is important to develop an effective risk management strategy and encourage a “loss-side culture”—a company-wide attitude focused on preventing losses. A good starting point is to have a clear understanding of workers compensation, risk management, and the resources you can leverage to benefit your business. Workers Compensation Workers Compensation was first enacted in 1911 by the state of Wisconsin. Today, it is a no-fault system established under individual state law that provides medical and wage loss payment to employees injured in the scope of their employment. Over the past several years, its costs have experienced double-digit increases and currently may account for the majority of every dollar spent on casualty insurance. Experience “Mod” Your loss experience can influence your premium greatly through a workers compensation experience modification factor, or “mod," set by the state or independent rating bureaus. To determine your experience mod for 2017, payroll and claim experience from 2013-2015 will be used. The formula used to calculate the experience mod takes into account employee classification, payroll, actual losses, expected losses, and frequency and severity of claims. All this information is used to compare the losses your business has experienced to expected losses of businesses of similar size and operations. The average experience mod is 1.00. An experience mod above 1.00 is worse than the average, and below 1.00 is better. Remember, however, that 1.00 is only average. It’s like getting a “C” on a report card.  

Are you satisfied with your workers compensation experience mod? Is it trending in the right direction? 

Determining your lowest obtainable experience mod can reveal unrealized profit leaks.

Sample Workers Compensation Analysis
Current work comp mod 0.98 Work comp premium $49,000
Average work comp mod 1.00 Work comp premium $50,000
Lowest possible mod 0.73 Adjusted premium $36,500
Work comp mod without strain injuries 0.76 Adjusted premium $38,000
Experience mod is costing $12,500 per year! Strain Injuries are costing $11,000 per year!
For example,
  • a company has a .98 experience mod and
  • it pays $49,000 in workers compensation premium and,
  • its lowest obtainable experience mod is 0.73.
The formula reveals that the current experience mod is costing the business $12,500: Base premium $50,000 X 0.73 = $36,500 $49,000 – $36,500 = $12,500 Generally speaking, businesses with more employees have lower possible mods. By understanding how experience mods are calculated, a further analysis can be completed to determine what could be affecting the experience mod. For example, it is possible, for illustration purposes, to recalculate experience mods by excluding claims for certain types of injuries (e.g., back, eyes, strains, falls, etc.), so you can understand which types of injuries are impacting your experience mod. A further analysis can be completed to determine if a different deductible or return-to-work program would be beneficial, because some states allow workers compensation deductibles to be deducted from their experience rating, and most states allow “medical-only” claims to be reduced by 70 percent for experience rating. Once you understand which types of injuries are negatively impacting your workers compensation mod, you can set action plans to help address the problem areas. With assistance from your insurance company, and by implementing a loss-side culture, your experience mod could improve significantly! Risk Management Successful business owners recognize that they must protect their employees to retain them and remain profitable. According to OSHA’s Office of Regulatory Analysis, every dollar invested in safety and health programs saves between four and six dollars in claims costs, and a 20 percent or more reduction in illness and injury rates1. In addition to the direct costs of an employee injury, there are hidden costs, such as lost time, loss of production and efficiency, new employee training costs, and costs associated with employee morale issues. Risk management includes hiring and training the right people, preventing injuries through administrative and process controls, and, if an accident occurs, managing the claim to minimize its severity. Risk management also can help encourage a company-wide attitude focused on loss prevention.     Hiring & Training – Injury prevention begins with an effective hiring program to employ qualified people who will become assets to your company. Accurate assessment of each job’s demands helps in selecting qualified people who have the needed skills and characteristics compatible with your business culture. A good employee/employer relationship will likely result in a more productive, profitable work environment. Once you select the right person, provide adequate training. According to the U.S. Bureau of Labor Statistics, approximately 35 percent of construction workers injured on the job have been with their employer for less than twelve months.2 Training and orientation should be documented, and cover the job expectations and instructions on safe job performance. The least expensive claim is the one that never occurs. Loss Control – To control your experience mod, focus on loss control that reduces frequency. (Frequent losses increase the chance of experiencing a severe loss.) Effective control programs cover an array of topics. To develop effective programs, consider your environment, your people, and the equipment they use.
  • Assess your exposures based on loss experience, business practices, work environment, and equipment.
  • Eliminate exposures if possible, develop programs to control them, and provide personal protective equipment.
  • Implement control methods, provide training, and require documentation.
  • Hold managers and employees accountable for safety.
  • Monitor and evaluate practices, behavior, and experience.
  Claims Management – If an employee does become injured on the job, having a plan in place is very important to help ensure that your employee is treated quickly and appropriately.
  1. Select an insurance company with an aggressive managed care program. Tremendous savings are possible by analyzing medical bills against applicable fee schedules, PPO network discounts, proper bill coding, and eliminating duplicate billing. For example, over the past three years, Federated Insurance has realized savings of more than 50 percent off billed charges through its managed care program. This is important, as every dollar saved is a dollar that won’t be included in your experience modifier rating.
  2. Report claims promptly to your insurer. A National Council on Compensation Insurance study shows the cost of a claim increases four percent for each day of delayed reporting.3
  3. Implement a return-to-work/modified duty program. This allows the injured employee to be productive, maintains communication with the supervisor, reinforces the company’s concern, and can help prevent the “disability attitude” often associated with an injury.
Leveraging Your Resources Local resources such as medical providers, fire departments, law enforcement, and county agencies are available to help you prevent and reduce injuries at your business. Your insurance company can help with specific concerns. Ask for help with claims analysis, experience mod analysis, safety training, materials and programs, prompt claims reporting, return-to-work programs, and preferred provider networks. Partner with an insurer that can help you create an action plan to meet your short- and long-term goals. In the past, safety was driven by regulations. Today, it simply makes good business sense! Located in Owatonna, Minnesota, Federated Mutual Insurance Company is the recommended insurance carrier for the Mason Contractors Association of America. If you would like to meet with a local Federated representative to review your current policy or discuss coverage options, call 1-800-533-0472, or log on to federatedinsurance.com. This article is intended to provide general information and recommendations regarding risk prevention and should not be considered legal or other expert advice. This is not an offer of insurance. The recommendations herein may help reduce but are not guaranteed to eliminate any or all risk of loss. The information herein may be subject to laws and regulations in your state. Consult a qualified professional for advice regarding your business’s unique needs. © 2017 Federated Mutual Insurance Company. All rights reserved. 1 “White Paper Addressing the Return on Investment for Safety, Health, and Environment (SH&E) Management Programs”; posted by The American Society of Safety Engineers; accessed September 2017 http://www.asse.org/professionalaffairs/action/return-on-investment-for-safety/ 2 Bureau of Labor Statistics News Release, Thursday November 8, 2012; “NONFATAL OCCUPATIONAL INJURIES AND ILLNESSES REQUIRING DAYS AWAY FROM WORK, 2011; TABLE 8, p. 19; accessed September 2017; https://www.bls.gov/news.release/archives/osh2_11082012.pdf 3 “Understanding Work Comp Can Help You Lower Costs”; posted January 13, 2016, by Unico; https://unicogroup.com/understanding-work-comp-can-help-you-lower-costs/; accessed September 2017.
 Words: Jack West, National Account Executive, Federated Mutual Insurance Company
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