New Workers Compensation Experience Modification Formula Increases Incentives For Getting Injured Employees Back To Work.

Starting with policy year 2013, the work comp experience modification formula will change.  The old formula has gotten long in the tooth and these changes are designed to give more weight to any given employer’s actual workers compensation experience than the old formula is able to better reflect any given company’s actual loss experience.  But for most people, the mod formula is confusing and complicated and grasping this change will be best understood once they receive their new, recalculated mod.  So while we won’t get into a lot of details about the math in this article, we will talk about the impact of getting your people back to work more quickly and how this one act can affect the final experience mod factors across different industries. 

Here is a simplistic answer to what is changing in the experience modification formula.  Your mod formula is the tool that the insurance industry uses  which attempts to compare your actual loss results with those that would be expected based on your payrolls for each class code on your workers compensation insurance policy.  Primary losses, one side of this formula, are currently capped at $5000, regardless of how much more than that is actually paid out.  This is called the split point and this is what is changing.  Beginning next year this cap will increase and by 2015 will be more than $15,000.  After that it will change to reflect the inflation rate.   For many employers with claims over $5,000, the primary impact of this change will be to push bigger numbers to this side of the formula.  While the mod changes should be nearly neutral over the entire universe of workers compensation policies, some companies will see big increases while others may see decreases.  So how vulnerable is your company and while we are at it, your industry to the potential for large experience modification factor increases?

Step one to control your mod factor is to control the existence of any losses in the first place.  This means prevention is your number one cure.   But the focus of this article is to look at things that you can do once you’ve had an accident to help reduce the negative impact of that loss on your mod.   When I look at the formula, and how it is calculated, it becomes increasingly obvious that you should try and get all injured employees back to work before the disability waiting period (7 days in NC) runs out.  This is because the mod formula applies a 70% discount to all medical costs for claims that have no disability component.  Once your injured employee starts drawing disability, then the discount goes away and all of the medical costs are now dumped into your mod formula.  You can see why it is so important for you to find a workers compensation insurance company that has the loss control and back to work programs that can help prevent you from owning a claim that has gotten deep into the disability coverage of your policy.

Because all industries are different and have different types of claims, the impact of an effective back to work program varies a bit by industry.   Summit Insurance recently released a study of several industries and the anticipated impact of the mods for businesses in those industries depending on whether or not they were able to access an effective return to work program.  Here’s a sample of some of their results.  If you are in the automotive repair business then an effective back to work program could reduce your mod on your garage workers compensation insurance policy under the new formula rules by 6 points.  That would be a savings of $600 per year on a $10,000 policy for every claim that you have.  Landscapers workers compensation insurance policies will average a 3 point reduction as do electricians workers compensation insurance policies and workers compensation insurance policies for HVAC contractors.  Plumbers are likely to see a 4 point reduction and restaurants with workers compensation insurance policies could enjoy a 6 point mod reduction per claim for choosing a workers compensation carrier with an effective back to work program in place.

These numbers reveal once again that choosing a workers compensation specialty company with their associated loss control and back to work programs can save you a substantial amount of money in the long run by helping you keep your experience modification factor lower.  Generally I advise people to place as many of their policies with the same insurance company for the best treatment and lowest rates.  But workers compensation is another animal.  Here your rates will reflect your past losses through your experience modification factor and so you will have to live a long time with your mistakes.  For that reason, every business should treat their workers compensation insurance a bit differently and make sure that they choose and agent and a company that have experience in this area.   I would suggest that you to take some time to read the loss control and claims costs control features on the web site for the company that provides you with your workers compensation insurance policy.  Take advantage of what they offer and implement where you can to prevent losses and to get your injured employees back on the job as soon as possible.  If you need any help at all with your workers compensation insurance, please call us, Clinard Insurance Group,  toll free, at 877-687-7557.