Controlling Workers’ Comp Costs
Workers’ compensation costs can make or break your bottom line. But control over these costs is more attainable than you may think if you understand your experience modification factor and its effect on your insurance premium.
Use Your Mod Factor
The key to controlling your workers’ compensation costs is understanding your experience modification factor, or mod factor. Your mod factor is an adjustment to your workers’ compensation premium. It’s based on your company’s actual losses compared to its expected losses based on the industry you’re in.
The mod factor represents either a credit or a debit that is applied to your workers’ compensation premium. A mod factor greater than 1.0 is a debit mod, which means that your losses are worse than expected and a surcharge will be added to your premium. A mod factor less than 1.0 is a credit mod, which means losses are better than expected, resulting in a discounted premium.
If your mod factor is over 1.0, show management how controlling costs can save you money on your insurance premium when it falls below the 1.0 threshold.
Control Your Mod Factor
You may not know it, but you do have control over your mod factor—and control over your workers’ compensation premium.
Your mod is calculated based on data reported to the rating bureau by past insurers. Incorrect or incomplete data can cause inaccurate mod factors. Review your loss and payroll data to ensure that your calculation is complete and accurate.
You can also control your mod factor by encouraging everyone to focus on safety—especially management and anyone else who is involved in controlling costs. Everyone working safely means fewer accidents to report to your insurance carrier and a lower mod factor.
Control Costs with a Return to Work Program
Another way to control your costs is to establish a return to work program and give modified or light duties to injured workers who can return to work.
Finding modified or light-duty tasks may seem inconvenient, but this is an important way to reduce your workers’ compensation costs—you pay for fewer days away from work and you keep regular contact with employees, so you can see how their recovery is progressing. The most successful return to work programs can accommodate almost any restrictions.
Workplace Policies Help Control Costs, Too
Your workplace policies should encourage safe working habits and prompt reporting of injuries and accidents. Many companies have accident reporting policies in place but do not bother to implement them, which is dangerous because employees’ injuries could go untreated and hazardous situations will not be improved.
When you receive a claim for an on-the-job accident or injury, report it to your workers’ compensation provider as soon as possible.
After an accident or injury, investigate the event right away. Prompt investigation helps you preserve evidence and can deter employees from making fraudulent claims in the future.
If workers’ compensation costs are hurting you financially or if you want to learn more about how your mod impacts your premiums, look to your broker at Horst Insurance for the resources, policies and guides you need to keep your costs in check. We’re here to help you protect your company and your bottom line.
Understanding Your Workers’ Compensation Experience
A key to understanding your workers’ compensation premium is the experience modification factor, also known as your mod. Understanding your company’s mod and the data used to obtain it helps you identify ways to minimize your workers’ compensation premium.
Who calculates the mod factor?
Most states use the National Council on Compensation Insurance (NCCI) to collect data and calculate the experience modification factor. The NCCI is a private corporation funded by member insurance companies. The remaining states either operate an independent workers’ compensation bureau or have set aside a state fund for workers’ compensation. These states may or may not use the NCCI’s classification system to determine experience modification factors.
How is a mod calculated?
The process of calculating the experience modification factor is complex, but the underlying theory and purpose of the formula is straightforward. Your company’s actual losses are compared to its expected losses by industry type. The formula incorporates factors that account for company size, unexpectedly large losses, and the incidence of loss frequency and loss severity to achieve a balance between fairness and accountability.
How does my mod affect my premiums?
The mod factor represents either a credit or debit that is applied to your workers’ compensation premium. A mod factor greater than 1.0 is a debit mod, which means that your losses are worse than expected and a surcharge will be added to your premium. A mod factor less than 1.0 is a credit mod, which means losses are better than expected, resulting in a discounted premium.
What is the experience rating period?
The mod is calculated using loss and payroll data for an experience rating period. The experience rating period typically includes data for three policy years, excluding the most recently completed year. For example, if your anniversary rating date is Jan. 1, 2017, the experience period is 2012 to 2015. 2016 would be excluded.
Three years of data is used to provide a more accurate reflection of the losses, smoothing out the impact of an exceptionally bad or good year for losses.
Both actual and expected losses are divided into a primary and an excess portion in what is called
a split rating method. Primary losses are designed to be an indicator of loss frequency (the number
of losses) and are used at their full value in the mod formula. Excess losses are an indicator of loss severity (the amount of each loss) and are weighted in the formula so that they are less important. The emphasis of loss frequency over loss severity in the formula reflects the fact that loss frequency is a more significant indicator of risk and can be improved through proactive loss control programs.
In July 2011, the NCCI announced a proposal to raise the split point from $5,000 to $15,000 over a three-year period to better correlate with claims inflation. The process of transitioning to the new split point began in 2013, with an increase in the split point from $5,000 to $10,000. In 2015, the split point included an additional increase as a result of claims inflation, and the NCCI now makes annual adjustments to the split point based on inflation.
In 2017, the NCCI’s rating system will use a split point of $16,500. This means that the first $16,500 of every loss is considered a primary loss, and any amount over this point is considered an excess loss. For example, a $9,000 loss would have no excess losses, as it falls below the current split point of $16,500. However, a loss of $25,000 would have $16,500 in primary losses and $8,500 in excess losses. Additionally, medical-only claims figures may be reduced by 70 percent in approved states.
Expected losses are calculated using your payroll data by state and class code and applying the expected loss rate (ELR). The ELR is provided by each state’s rating bureau. These figures are also broken down into expected primary losses and expected excess losses.
How do your losses compare?
The final mod calculation compares your actual primary and excess loss figures to those expected for a company of the same size and industry type. To understand how workers’ compensation losses at your business compare to state industry averages, contact Horst Insurance to review your experience modification worksheet.
How can you control your mod?
Your mod factor has a direct impact on your workers’ compensation premium. The key to controlling your insurance costs is accident prevention.
- The mod is calculated based on data reported to the rating bureau by past insurers. Incorrect or incomplete data can cause incorrect mod factors. Review loss and payroll data to ensure the calculation is complete and accurate.
- Losses remain in the experience rating formula for three years. The experience modification factor is influenced more by small, frequent losses than by large, infrequent ones.
- Safety programs, return to work programs and appropriate prevention procedures can help to reduce loss frequency.
- An effective self-inspection and accident investigation program are critical to managing claim frequency.
- Claims management programs can help your business manage outstanding reserves and focus on efficiently resolving open claims.
- Any claims should be reported to your carrier immediately.
- All injured employees should be provided with light duty upon their release from treatment so you can close claims and ensure the health of your employees.
- Supervisory roles should have set safety performance goals. Success in achieving safety goals should be used as one measure during performance appraisals.
- Employees should be trained on their responsibilities for safety, and should know to enforce violations.
- You should frequently communicate with employees on a formal and informal basis regarding the importance of safety.
How can your experience rating save you money?
Establishing a proactive safety program is an effective way to reduce losses, positively impacting your mod and workers’ compensation premium. Contact us today at (800) 533-2011. We have the loss control experience to help you promote safety and control your workers’ compensation premium.
Five Strategies for Reducing Workers’ Compensation Costs
When a company experiences significant increases in workers’ compensation costs, it usually triggers internal activities aimed at reducing insurance costs and spending. The key to spending fewer dollars is more than just stopping a few accidents; it is having a sound safety program designed
to continuously improve. This is where a safety program that, at a minimum, is compliant with the Occupational Safety and Health Administration (OSHA) standards can yield significant savings for by reducing injuries and illnesses, saving workers’ compensation dollars.
Building a Solid OSHA Program
There are five elementary steps can take to have a well-rounded safety program that produces a safe work environment, achieves OSHA compliance, reduces accidents and ultimately reduces workers’ compensation costs.
- Develop the various programs required by the OSHA standards.
- Integrate those programs into the daily operations.
- Investigate all injuries and illnesses.
- Provide training to develop safety competence in all employees.
- Audit your programs and your work areas on a regular basis to stimulate continuous improvement.
Develop Programs Required by OSHA Standards
Aside from being a requirement for general industry, the OSHA standards provide a good pathway to incident reductions. A good number of accidents stem from poorly developed or poorly implemented OSHA programs: failure to keep walking and working surfaces clear may result in slips or trips, not using personal protective equipment may result in excessive lacerations, and poor lifting techniques can result in strains.
Many of the OSHA standards require some type of written program be developed and then communicated to employees. Experience shows that companies with thoroughly developed OSHA-compliant programs have fewer accidents, more productive employees and lower workers’ compensation costs.
Integrate Programs into Daily Operations
Policies alone won’t get results; the program must move from paper to practice in order to succeed. Putting a policy into practice requires a strategic plan clearly communicated to key participants, good execution of that plan based on developed competencies and a culture that inspires and rewards people to do their best.
When developing any business initiative, there must be an emphasis on frontline supervisors and helping them succeed. Every good business person knows that any new program—safety, quality or anything else—lives and dies with the frontline supervisor. If the frontline supervisor knows the program and wants to make it happen, the program succeeds; if not, the program is a source of constant struggle and an endless drain on resources and energies. Providing supervisors with knowledge and skills through training is critical to the success of any program.
A solid OSHA program integrated into the daily operation and led by competent supervisors is just the beginning. Successful safety programs focus on being proactive instead of always reacting to issues. Accident investigations provide an excellent source of information on real or potential issues present in the workplace.
Investigate All Injuries and Illnesses
Workers’ compensation is designed to recompense employees for injuries or illnesses they suffer
in the course of their employment. This should not come as a surprise, but increasing numbers of claims drive up workers’ compensation costs. To reduce those costs, you must simply reduce your accidents, and the ability to reduce accidents is significantly enhanced when those accidents are fully investigated instead of simply being reported.
Accident reports are historical records only citing facts, while accident investigations go deeper to find the root cause and make improvements. Businesses that stop rising workers’ compensation costs have an effective accident investigation process that discovers the root cause of the problem. Unless the root cause is discovered, recommendations for improvement will remain fruitless. Again, training proves beneficial because a supervisor skilled in incident analysis is a better problem solver for all types of production-related issues, not just safety.
All accidents should be investigated to find out what went wrong and why. Some may suggest investigating every accident is a bit over the top and only those that incur significant costs are worthy of scrutiny. But ask yourself this question: If you only investigated serious quality concerns instead
of every little deviation, would your quality program still be effective? Companies with solid quality programs investigate and resolve every deviation from quality standards.
If your emphasis is only on those incidents that have to be recorded on the OSHA 300 log, you close your eyes to the biggest accident category: first aid-only incidents. Many companies get upset about recordables or lost time accidents because of the significant costs involved, but they don’t realize that the small costs and high numbers of first aid-only incidents really add up.
Statistics show that for every 100 accidents, 10 will be recordable and one a lost-time incident. If you investigate only recordables or lost time accidents, 89 go unnoticed. Would you consider a quality program that allows an 89 percent failure rate successful? Reducing serious accidents means you
must reduce your overall rate of all accidents – including first aid-only incidents. That only happens when every incident is fully investigated to find the root cause, and remedial actions are identified and integrated into the daily operation.
Training and Auditing for Continuous Improvement
The final steps focus on training and auditing your program for continuous improvement. Training plays a significant role in safety and in reducing workers’ compensation costs. The goal of training is to develop competent people who have the knowledge, skill and understanding to perform assigned job responsibilities. Competence, more than anything else, will improve all aspects of your business and drive down costs. Supervisors must have the knowledge and ability to integrate every safety program into their specific areas of responsibility. Every employee must know what is expected of them when
it comes to implementing safe work procedures. Once the programs are developed and implemented, they must be reviewed on a regular basis to make sure they are still relevant and effective.
This might require a significant change in how you manage your safety program, but if your workers’ compensation rates are high, it may be time to make this leap.
- Studies indicate there is a return on investment and that companies see direct bottom-line benefits with a properly designed, implemented and integrated safety program.
- A competency-based safety program is compliant with OSHA requirements and therefore reduces the threat of OSHA fines.
- A competency-based safety program lowers accidents, and fewer accidents lower workers’ compensation costs. When incidents do occur, a competency-based safety program fully evaluates the issue and finds the root cause to prevent reoccurrence and provides a workplace that is free from recognized hazards.
- A safer workplace creates better morale and improves employee retention. Auditing keeps your programs fresh and effective and drives continuous improvement.
- A competency-based program produces people who are fully engaged in every aspect of their job and are satisfied and fulfilled producing high-quality goods and services.
How Can We Assist You?
At Horst Insurance, we are committed to helping you establish a strong safety program that minimizes your workers’ compensation exposures. Contact us today at (800) 533-2011 to learn more about our OSHA compliance, safety program, and accident investigation tools and resources.
Workplace Wellness Programs to Reduce Workers’
By implementing workplace health initiatives, many companies are taking proactive measures to help with decreasing health issues affecting their employees. This is particularly important because of the following:
- The working population is aging, with the national average around 42 years old.
- There is a decreasing number of skilled workers, increasing the number of on-the-job injuries.
- Obesity rates are astronomical and continue to rise.
- There is a steady increase of inactivity among Americans.
- Medical care costs continue to rise.
- There is an increase in stress-related illnesses.
- Approximately 10 percent of Americans are living with major limitations from chronic conditions, such as diabetes, asthma or thyroid disorders.
Most importantly for risk managers, non-work-related health issues directly increase the risk of work- related injuries.
Getting Employees Healthy
To assist your employees in getting healthy, staying healthy and consequently reduce their risk of a workplace injury or illness:
- Create an employee safety education committee devoted strictly to health problems that correlate with injuries.
- Teach employees how to properly investigate accidents and determine ways in which they could be prevented. This may include the following:
- Ergonomics evaluations
- Lift equipment evaluations
- Offer personal health profile screenings for employees to identify their risk factors. This should include screenings for cholesterol, bone density, glucose, body mass index and other essential tests.
- Provide personalized health coaching and self-help materials.
- Offer quarterly corporate challenges to promote weight loss and activity.
- Offer quarterly educational safety and health seminars.
- Consider implementing a cross-promotional safety and health program with your health care provider.
- Provide incentives to employees who fulfill health-related goals, or remain free from injuries for an established amount of time.
- Refer all employees who suffer a work-related injury to the wellness program coordinator for a consultation.
- Incorporate a safety presentation in your wellness seminars.
- Workers’ compensation managers and risk managers should provide health and wellness referrals to injured employees.
- Distribute monthly safety, health and nutrition tips to employees.
For more information and resources on how you can create an effective safety and health program, contact Horst Insurance today at (800) 533-2011.