Workers Compensation Insurance: No Matter How Many Employees – Workers Compensation is Mandatory
What is it?
It’s on-the-job insurance for injured workers.
Workers compensation provides benefits to your employees for work-related injuries or illnesses. This includes reasonable expenses for necessary medical care, lost wages, disability benefits and survivor or death benefits. Workers Compensation was also put into place as a vehicle to protect the employer from getting sued for negligence.
Experience Modification Factor – What Does It Mean and How Does It Affect Your Bottom Line?
The key to calculating a 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.
How is a mod calculated?
Your company’s actual losses are compared to its expected losses by industry type. The formula incorporates factors that account for company size, unexpected large losses and the difference between loss frequency and loss severity to achieve a balance between fairness and accountability.
How does your mod affect your 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, for a mod factor calculated on January 1, 2011, data would be used for the January 1, 2007-2008, January 1, 2008-2009 and January 1, 2009-2010 policy periods. The data for the January 1, 2010-2011 would be excluded.
The actual loss data is separated into primary and excess pools. Primary losses, which are the first $5,000 of every loss, measure frequency. Excess losses — or amounts more than $5,000 — measure severity. The formula penalizes loss frequency by including all loss amounts in the calculation. The reason for this is that these types of claims can be controlled through proactive loss control programs.
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.
How can you control your mod?
The key to controlling your insurance costs is accident prevention.
- Develop a sound safety program, return to work program and appropriate prevention procedures to reduce loss frequency.
- An effective self-inspection and accident investigation program are critical to managing claim frequency.
- Implement an active claims management program to manage outstanding reserves and focus on efficiently resolving open claims.
- Report all claims to your carrier immediately.
- Take an aggressive approach to providing light duty to all injured employees upon their release from treatment.
- Set safety performance goals for supervisory roles. Success in achieving safety goals should be used as one measure during performance appraisals.
Contact us today at (818) 898-1043. We have the loss control experience to help you promote safety and control your workers’ compensation premium.
