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A Publication of WTVP

Many companies experience learned helplessness in their efforts to curb escalating workers' compensation costs. Although there are many methods of cost control, we must examine a common component with high impact: the cost of insurance risk.

One of the greatest variables affecting workers' compensation premiums is the experience modification factor-often called the "mod rate"- insurance companies use to calculate premiums. The mod rate is the ratio between a company's actual losses and its industry's expected losses for that company. The standard work comp premium for that industry is multiplied by this variable, thereby increasing or decreasing the premium.

For example, if the standard comp premium for the industry is $10,000 and a company has a mod rate of 1.10, the company will pay an $11,000 premium. However, if the company has a mod rate of 0.90, it now only pays $9,000. In other words, increasing actual losses makes a company less market-competitive, due to its mod rate.

Companies other than the insurance industry use mod rate information. Many companies require mod rate histories from their subcontractors. These companies view mod rates as a safety barometer; they don't want the added liability exposure of an unsafe company working for them.

Understanding the mod rate is one thing; controlling it is another. There are many steps you can take to manage this variable and use it to your advantage. First, have your agent audit your mod rate worksheet-over 50 percent of these worksheets contain errors.

Next, focus on your workers' compensation program. To have the greatest control, the approach should be comprehensive. This means more than purchasing an insurance policy; a well-managed program targets the following areas:

This may seem overwhelming, but if you can develop a good network of resources, it will create a much simpler process. An excellent resource is a full-service occupational medicine provider. These providers should be willing and able to help you develop post-offer physicals, write job descriptions, manage injuries, coordinate return-to-work situations, and help with safety programming. When choosing a provider, look for the following:

A quick note about pricing: While it's important, pricing is ultimately a secondary factor to using a provider that quickly evaluates injured employees, determines compensability, and works towards returning them to work. This will lower-if not eliminate-the indemnity from your loss history. The rule of thumb: Indemnity is bad for your mod rate. Most claims that include indemnity costs will adversely affect the mod rate for three years after the costs are incurred. Clearly, the greatest opportunity to reduce your mod rate is to reduce indemnity costs.

Remember, there's hope. Understanding the causes of these increased costs, developing comprehensive strategies, and networking with those who will help you makes a world of difference. IBI

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