WORKERS COMPENSATION INSURANCE

There are several reasons to carry a worker’s compensation insurance policy. One, it is the law. Two, most contractors won’t pay you without a certificate of insurance (COI). Three, one of your employees may actually need it one day.

Like it or not, insurance is a big part of the business. Worker’s compensation can be especially costly depending on what you do to make a living. Even if you’re paying a premium every month, you need to verify that the class codes are correct for the work being done and you’ll need to get a certificate of insurance (COI) from all of your subcontractors, or your audit will cost you more than you expect. Finally, you need to know and manage your workers' comp experience modifier (also known as an EMOD, XMOD or EMR). 

How does it work?

At some point, a few smart people got together and decided that the employer should pay when their employees get hurt on the job. Just like every other liability, someone jumped in and started offering insurance to cover the associated risk. As things progressed, some rules were put into place to help make it fair. For example, workers comp insurance will pay 100% of the medical costs, but only 66% of lost wages (after all, besides you and me, who’s going to go back to work if they can make the same amount sitting on the couch at home?). Class codes were invented (numbers that correspond to job descriptions) and values were associated with each class code by actuaries (fancy accountants) someone locked in a closet to figure out how much should be charged for each job or code. 

The actuaries figured that a roofer should pay more premium than a burger flipper, who should pay more than an office worker. So far, so good. Paying according to risk seems pretty fair, but they went a few steps further. Thanks to the e-mod, good and bad performers within a class code get priced according to their business experience. In other words, safe roofers that aren’t getting hurt pay less than those roofers with less regard to safety.

EMR

An experience modification rate is basically a multiplier. Fewer losses earn you a smaller multiplier like a 0.61. More losses earn you a larger multiplier like a 1.8. A 1.0 represents average or expected losses. Everyone starts with a 1.0 and your experience goes from there. There are a couple of exceptions and some premium requirements, but for the most part, every business will have an e-mod. The e-mod basically works by taking a look at your 3 previous complete years of workers' comp experience. It factors things like medical expenses, lost time, frequency of accidents, etc. Some losses are expected, but when they exceed the actuary’s expectations in frequency or actual losses, your e-mod will react and increase. Likewise, when you perform better than expected, your e-mod will react and decrease.

Modified or light duty

Last item regarding managing your e-mod. When your policy is renewed, any claim that was medical only and had no lost wages paid by your workers comp carrier gets discounted by 70% when calculating your new policy. This is a big reason for a light or modified duty program and a subject for another post. Just remember, when lost time is associated with the claim, medical is counted against you at 100%.

Questions about your experience modification rate, workers comp or safety?

Reach out to us at dcshrm.com