Experience Modification Factor (EMod/X-Mod) Is Like A Credit Score
The Experience Modification Factor can be thought of as a credit score. There have been many articles written recently on the upcoming credit law changes effective February 22nd. The articles made me think which is the hardest to improve or correct if there are errors – your personal credit score or an E-Mod/X-Mod?
One of the ways that credit scores and E-Mods differ is the length of time in the past that a correction can be made if an error exists. There is no limit on how far back an individual can search for an error in their credit report. Even if the error happened 10 years ago, you have the opportunity to disprove the error.
In the Workers Compensation system, anything older than 45 months cannot be reviewed (with very few exceptions)- no matter how gross the policy or reserve error might have been to your E-Mod. There is one way to go further into the past and that is with a complaint to the Insurance Commissioner. We have found the complaints on very old policies to fall on deaf ears. The only time that we have been able to have a very old policy fixed was due to an error by the State Rating Bureau, not the Workers Comp insurance carrier.
This is a very important point. Your company needs to monitor its Workers Comp Experience Modification Factor every year. Errors must be found quickly or they will just float off into the past.
On the other side of the coin, the Workers Comp E-Mod or X-Mod system does not reflect on your safety record of the present. A safety program has to be in place for four years. We had assisted a Risk Manager of a South Carolina transportation company. Their E-Mod actually increased and the Risk Manager’s feet were held to the fire. What management did not realize is that the Workers Compensation system is also a delayed system. Having a great claims record for just the current year will mean little. A safety and claims program has to be in place for three years or more for the effect to be fully realized. In the economic environment of today, many senior management teams can become very impatient very quickly.
Making Workers Compensation the project of the month and moving onto something else will usually end up making everyone very frustrated. The process needs to be in place for 36 months or longer to see its full effect. The first year of a great safety program will not show up for two years at a minimum on the E-Mod and it will only have an effect of 33% or less.
I am posting generalities, but the preceding paragraphs are very true. The E-Mod or X-Mod systems do not show any historical data beyond 45 months and less than 12 months. Do I agree with the system? I always answered that it is the system we have in place, so we have to deal with it.
A correction to a personal credit report will have an immediate effect. The credit scores indicate what is happening now with your personal finances. An E-Mod is delayed by at least 6 months. Credit scores operate very far into the past and right up to the moment.
How does a company counteract or manage the EMod or XMod system? There needs to be someone on staff that understands the systems fully, even if it is an outside consultant. There needs to be a workable plan in place. That plan must be sustainable. Claim reserves and policies need to be examined quarterly if not more often. If anything looks odd, it probably is.
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