Any employer that has employees is required to have workers’ compensation insurance to protect an employee injured while on the job. If you’re reading Snow Business, you are likely grouped as a contractor and might have the snow removal and clearing classification on your workers’ compensation policy. Using their compiled data, insurance carriers use this classification to determine the appropriate rates to charge for different business types. Simply put, this method would be called manual rating. Employers are grouped by a classification and the group’s estimated losses are added together and an average rate is determined.

Experience rating is designed to reflect individual differences in expected losses based on historical data. In a workers’ compensation rating, the actual payroll and loss data of an employer is analyzed over time to calculate its experience modification rating (EMR). There are two primary benefits to having an EMR:

• Tailors the cost prediction and net premium cost to the individual employer more closely than the manual rating alone.
• Provides added incentives for loss reduction that are absent from manual rating alone.

The EMR promotes occupational health and safety within the workplace and gives employers an incentive to control losses, develop safe practices and control claims. A good EMR (under 1.00) results in a credit modification and premium savings. Conversely, an EMR over 1.00 results in a debit modification and higher premiums. A simple example: A company with a base premium of $25,000 and a modification of 0.80 would pay $20,000 annually, but having a 1.20 mod would result in a $30,000 premium.

Understanding your workers’ compensation EMR, and working to keep it under 1.00, will keep you ahead of your competition. It can help you win a bid since your costs could be lower than your competition’s. It makes you more marketable to insurance carriers for preferred pricing. As claims and the EMR go up, the number of carriers willing to quote your business goes down. You can also be denied a job from some general contractors or property managers if your modification is over 1.00. Take your modification rating seriously—keeping it low will provide many benefits to your business over time.

How to lower your EMR

1. If you are an employer that has suffered from a severity issue, it would be important to involve a safety committee to examine the types of injuries happening, where they are taking place and what factors contributed to the loss.
2. Is there a better technique that could be taught?
3. Is there new technology that would improve the process?
4. Work with your agent and insurance carrier to do a loss control visit at a job site or at your business to identify potential hazards.
5. Properly training new employees and requiring pre-employment physicals would be a great way to cut out claims that might happen to new employees.
6. Conduct "toolbox talks" – 5- to 10-minute meetings before beginning work that provide simple reminders of things to watch for.
7. Pre-inspect properties that you are entering into a contract with and understand the risks that could cause injuries to your employees.
   
   

Factors that impact your EMR

The National Council on Compensation Insurance (NCCI) calculates the experience modification for 39 jurisdictions. NCCI does not apply in CA, DE, MI, NJ, NY, PA or one of the monopolistic states for workers’ compensation (ND, OH, WA, WY). MN and WI are approved if there are exposures to one of the approved jurisdictions. Many important factors go into the EMR calculation:

Frequency vs. severity
The plan gives greater weight to accident frequency than to accident severity. The cost of a specific accident is often left to chance (e.g., employee’s pay, time out for the injury, survivor benefits based on age, etc.) and is statistically less predictable than the fact that the accident happened.

One claim with a total payout of $100,000 is far more predictable than an employer that has 20 claims during the same term and paid out the same $100,000. Carriers often think that with a high frequency of claims, the likelihood of one being severe is far greater than a company that has just the one shock loss.

Medical-only losses
A loss that results in only payment for the employee’s medical expenses and not lost wages does not have as high an impact on the modification as would a medical and indemnity (lost wages) claim.

Rating effective date
This is the effective date of the mod and is the earliest date that the mod factor will impact your policy. According to NCCI, data from each of an employer’s policies is included in the experience period if the policy effective date is no less than 21 months before the rating effective date and no more than 57 months before the rating effective date.

Since the mod is calculated generally 60 to 90 days before the rating effective date, the current policy is not used in the calculation since the loss data would be incomplete for that term. For example, a policy that renews on January 1, 2024, would typically be using loss data from the 1/1/20-1/1/21, 1/1/21-1/1/22, and 1/1/22-1/1/23 policy terms.

Qualifying for an experience modification
There is an established premium level (determined on a state-bystate basis) that must be achieved in one of the following two ways:

• Premium payments subject to experience rating in the most recent 24 months
• Achieve the established premium threshold on average over the entire experience period (3 years)

Jay Long is a certified insurance counselor with The Hilb Group of New England LLC dba Gerardi Insurance Services Inc. Contact him at jlong@gerardiinsurance.com. Learn more about experience rating at www.ncci.com.