Know the Rules of the Game
Leverage Your ‘Mod’ Squad to Keep Workers’ Comp Costs Down
By BILL GRINNELL
When Red Sox pitcher John Lackey grabbed his right arm in pain and walked off the mound in his first game of the 2013 baseball season, I can imagine that the Red Sox management held their breath. He had missed all of the 2012 season. They had just invested a year in getting Lackey healthy, including costly surgery and extensive rehabilitation.
During that year, Red Sox management diligently followed Lackey’s progress. They encouraged his return as soon as possible. And, after learning that his pain that day was just a bicep strain, they had him up and throwing again 10 days later. He was back in the rotation to beat the Houston Astros just three weeks after the strain.
If you have an employee on your company’s disabled list, you would do well to follow the Red Sox management’s example.
Sidelined employees are not only a drain on productivity, but they can also quickly escalate your workers’ compensation costs. Keeping tabs on these employees’ healing process and getting them back to work as soon as possible are key to reining in those costs.
The factors that drive workers’ compensation costs are many and complex. Understanding them is important. You can’t manage what you don’t know.
Generally speaking, workers’ compensation policyholders with an insurance premium over $5,000 are subject to the Mass. Workers’ Compensation Bureau experience-modification rules. These rules establish an experience-modification factor (or ‘experience mod’) that is used to calculate your workers’ compensation insurance premium.
Like auto-insurance rates, experience mods are designed to make premiums cost more for those insureds with adverse loss experience and reward those with better-than-average experience.
The formula for your experience mod takes into account the frequency and severity of your losses compared with similar-sized companies in your industry. The bureau uses policy-holder loss data that is reported by insurers every year to calculate the experience mod.
The bureau looks at a three-year period of losses to minimize the effect of an extreme year (good or bad). The three-year period covers the three years prior to the last policy year completed. For example, an experience mod calculated on Jan. 1, 2014 will take into account the data from the policy years Jan. 1, 2010 to Jan. 1, 2011; Jan. 1, 2011 to Jan. 1, 2012; and Jan. 1, 2012 to Jan. 1, 2013.
A ‘snapshot’ of the losses is taken six months into a policy term and then reported. It’s important to attempt to close out open claims or question high reserves prior to this six-month snapshot event.
How It Works
Let’s talk about how the experience mod works and then get to how you can control your workers’ compensation premiums.
Remember how I said that the experience mod takes your frequency and severity of losses and compares them to what would be expected of a company of your size in your industry?
Well, if your actual losses are lower than expected, your experience mod will be less than 1.0, yielding a credit factor. The credit factor is applied against the standard premium and will save you money.
If your actual losses are greater than expected, then your experience mod will be more than 1.0, generating a debit factor. The standard premium would then be multiplied by the computed debit.
In Massachusetts, it is important to understand the dramatic impact that small losses can have on an experience-mod calculation. The full brunt of a loss up to $5,000 is added into the equation. The amount of a loss above $5,000 is discounted by factors near 80%. Two $5,000 losses produce a significantly higher debit than one $10,000 loss.
Experience-mod calculations are more sensitive to adverse loss experience today than ever before. While our elected officials can claim that Massachusetts has some of the lowest workers’ compensation rates in the country, you won’t hear them talking about mod calculations. Favorable rates have been significantly offset by experience-mod surcharges.
Loss-control programs, safety manuals, and light-duty return-to-work plans are all important ingredients toward achieving a lower mod. Tactics like these and others can be your ‘mod squad’ and help you keep workers’ compensation premiums down.
But most important of all, be careful who you hire. New hires have consistently been the source of the worst workers’ compensation claims. Your hiring process is the key to your workers’ compensation experience-mod success.
With a selective hiring process, diligence with employee safety, and support to get injured and ill workers back on the job, you can keep your experience mod in check — and hopefully get World Series-winning performance from your employees!
Bill Grinnell is president of Northampton-based Webber and Grinnell Insurance Agency; email@example.com