The Experience Mod Reduction Plans are really worth it ? Yesterday, I was presented with two different employers’ loss runs and Experience Modification Factor Worksheets (Mod Sheets). One employer had a good E-Mod of .86. The other employer had an EMod of 1.3.
The Mod reduction plans for each of the two employers would not vary that much. The function of one mod reduction program was to reduce the Mod below 1.0 so the employer could bid on projects. Many contractors now require a sub-contracting company to have a Mod of less than 1.0.
Even though the second company had a mod of .86, I would also recommend not only an Emod reduction program, but an Emod preservation program. What would be involved with an Emod preservation program?
The answer to the question from the post title is under almost all circumstances, Mod reduction or preservation programs will almost always save an employer $. The Mod preservation program looks to keep the employer’s low mod in place by performing almost the same tasks as a Mod reduction program.
The Emod preservation program’s importance can be justified with almost the same justification when keeping a grade in school from falling from an A to a B. The same amount of effort has to be expended to preserve an A as it takes for a B student to raise their grade to an A.
If your company has an EMod of .86, then you are still going to use a very large amount of effort to keep the Mod from increasing to .9 and then subsequently to a 1.0.
We recently had two trucking clients with similar Mods have their Emod increase from .89 to almost 1.1 within two years. Both clients had relaxed their:
- Safety programs
- Loss run reviews
- EMod reviews.
- Claim reviews
The Emod jump from .89 to 1.1 is very significant. That means at a minimum, each company’s workers comp insurance had increased a ball park estimate of 20%.
I have also found a much higher degree of effort required when assisting clients in preserving a lower Mod than decreasing a higher Mod. The higher Mods will usually have “red flag” areas to identify and work on very quickly.
This is not so with a lower Emod clients as there may be no “red flags” for justifying a rapidly increasing Mod. Our low Mod clients have to use their crystal balls to proactively handle their claims as there are no obvious areas to examine for a reduction.
The bottom line is that if your company has a low Emod, there is much more room for it to become worse (higher) than an employer with a higher Emod.
Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.