Insurance

Workers Compensation eMod Explained

OSHA Final Rule

Your company’s workers compensation policy and all of its supportive pieces are vital to your company’s profitability and growth. Too many business owners and executives disregard this policy as a meaningless but necessary business expense that they do not care to know anything about. Approaching your workers compensation policy this way could cost you thousands of dollars! Also, it is a standard requirement in many industries to provide your eMod factor before being awarded a specific job or project, and if your eMod factor is too high, you may not be awarded that opportunity.

One of the most vital facets of your workers compensation program is your company’s assigned eMod factor.

To begin this discussion, it is important to understand that each state has assigned a company or governing body to regulate workers compensation for their state. The majority of the states use a company called the National Council on Compensation Insurance (NCCI) to manage workers compensation in their states. Washington, Wyoming, North Dakota, and Ohio are monopolistic states which means that the state government manages the purchasing and claims experience in their states. The following states use other independent bureaus to govern workers compensation in their states: California, Delaware, Indiana, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Pennsylvania, Texas, and Wisconsin. No matter which governing body manages workers compensation for your state, you will be issued an eMod factor by that organization. The eMod factor is not set, managed, or altered in any way by your agent or insurance company.

What is an eMod factor?

An eMod factor is a rating number that is calculated based upon your workers compensation premiums and workers compensation claims payments and is designed to show what risk level your company is based on similar companies in your industry and location. There are many factors that are gathered and used in the calculation of this factor, but the two specific factors that a business owner or executive can manage and affect are the workers compensation premium and the workers compensation claims payments.

The eMod factor begins for every company at 1.00. After three complete and recorded years of experience, then your eMod factor will begin to either increase or decrease. An increase in the factor above 1.00 means that your company is experiencing more than average claims experience, and a decrease in the factor below 1.00 means that your company is experiencing less than average claims experience. Accordingly, each tenth and hundredth that your eMod increases or decreases is directly tied to the debt or credit you are receiving on your workers compensation premiums. For example, if your company’s eMod is 1.23, then you are receiving a 23% debt (or increase) on your premiums. On the other hand, if your eMod is 0.90, then you are receiving a 10% credit (or decrease) on your premiums. Keep in mind that if your eMod is 1.23 and your competitor’s eMod is 0.90, then that means your competition is paying about 33% less on their workers compensation premium for the same amount of payroll.

There are many other factors that are used in the eMod calculation such as the stabilizing value, total expected losses, the minimum mod point, the ballast, the frequency and severity mod point, as well as the frequency and severity loss factor, but all of these are information pieces given and used by the governing body that calculates your eMod.

How does NCCI or other organization receive this information? All workers compensation carriers are obligated to report all information about your workers compensation policy, including premium and claims payments, to NCCI or whatever organization manages workers compensation for your state.

After each policy period is completed and the audits and have been collected and paid for, all of your policy information is reported by your workers compensation carrier to this governing body. Once this organization receives this information, they use your Federal Employer Identification Number (FEIN) to identify your company and apply the recently completed policy year’s data to your company’s file. The eMod is then calculated with this new number and applied to your existing workers compensation policy. Credits or debts are then applied to your new policy’s premiums.

Reduction Strategies for Your eMod Factor

Managing and reducing your company’s eMod factor is not just a matter of understanding its calculation but actively working towards creating a safer and more efficient workplace. Here are some proven strategies to help reduce your eMod factor:

  1. Implement Comprehensive Safety Programs: The first step to reducing workplace injuries, and in turn, workers’ compensation claims, is by implementing a robust safety program. Regular safety training, routine equipment inspections, and a culture of safety can drastically reduce the risk of accidents.
  2. Prompt Claims Reporting: The faster an injury is reported and addressed, the more efficiently it can be managed. Prompt reporting can lead to quicker medical attention and potentially reduced medical costs.
  3. Engage in Effective Claims Management: Having a dedicated team or partnering with an expert to manage and monitor claims can help ensure they are resolved efficiently. This can involve reviewing the loss run reports regularly, understanding the nature and cause of injuries, and working towards their prevention.
  4. Adopt Return-to-Work Programs: Such programs focus on getting the injured employee back to work as soon as they’re medically able, even if it means assigning them lighter duties. This can reduce the financial impact of the claim and promote a quicker recovery for the employee.
  5. Understand Your Industry Classification Codes: Premiums are often based on industry classification codes. Ensuring that your business is correctly classified can prevent you from overpaying.
  6. Regularly Review and Update Your Safety Protocols: Just having safety protocols is not enough. Regularly reviewing and updating them based on new equipment, processes, or industry best practices is vital.
  7. Invest in Training and Education: Offer regular training sessions to your employees on the importance of workplace safety, proper equipment handling, and the financial benefits of reduced workers’ compensation claims.
  8. Monitor and Analyze Data: Use data analytics to identify patterns in workplace injuries. By recognizing these patterns, you can take specific actions to address problem areas.
  9. Consider Policyholder Dividend Programs: Some insurance providers offer dividends to policyholders based on their claims experience. These programs can provide financial incentives for maintaining a low eMod factor.
  10. Engage with Industry Experts: Collaborate with industry experts and organizations to stay updated on best practices and recommendations related to workers’ compensation and workplace safety.

Remember, the goal is not just to reduce costs but to create a safer, more efficient, and productive workplace. A lower eMod factor is a reflection of that effort and can lead to substantial savings and growth opportunities for your business.

As a business owner or executive, paying close attention to your eMod could potentially save your company thousands of dollars. Also, many industries require knowing your eMod factor before giving you work, so a high eMod factor could lose you valuable jobs and growth opportunities.

As a service to all of our customers, Leavitt Insurance Agency has the ability to run a FREE workers compensation report which shows exactly how your current eMod is being calculated and all of the rating factors noted above. This report also outlines what potential premium savings your company could be enjoying if your eMod were to be lowered. If you would like a FREE workers compensation report with all of this information, please contact me at brad-rowe@leavitt.com or at (702) 947-4079.

Lastly, Leavitt Insurance Agency also offers a FREE online Risk Management Center to all of our clients which includes safety training videos, risk management library, claim and incident tracking tools, OSHA logs, Safety Data Sheet (SDS) downloads, and much more. We offer this for free in an effort to provide all the tools necessary for a business owner or executive to decrease your workers compensation eMod factor. If you would like to learn more about this free service, please contact me at (702) 947-4079 or brad-rowe@leavitt.com.

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Brad is a co-owner and commercial insurance broker with Leavitt Insurance Agency in Las Vegas, Nevada. With experience in many different fields of business, Brad is able to offer his clients the knowledge and understanding necessary to combine common business practices with proper insurance coverage.