Four Workers Compensation Measurements Of Success
My last post had covered the four Workers Compensation measurements of success or failure. Instead of combining both voluntary market and self insureds into one post I thought it best to separate them into two posts.
The four measurements of success for the voluntary market where an insured pays a premium are:

- E-Mods/X-Mods
- Current reserve levels for claims included in the Experience Period
- Employer measurements provided by insurance carriers such as lag time, etc.
- Bottom line – premium
E-Mods/X-Mods
Unfortunately (of possibly, fortunately), the Experience Mod system is like a credit score but much worse. When you apply for a loan, you are usually judged on just one number from the three credit bureaus. The same can be said when a company applies for Workers Comp insurance.

I have seen so many safety professionals and Risk Managers that are judged by this one number. There are so many other variables that indicate how an employer’s Workers Comp program is functioning. A complicating factor is that many employers bidding on contracts are required to have an E-Mod of 1.0 or less.
I realize there has to be a cutoff point. Is an employer with a .99 E-Mod that much safer than one with an E-Mod of 1.1? That is almost statistically insignificant. The company with the 1.1 E-Mod would not even be allowed to bid. The safety manager, risk manager, and CFO of the 1.1 E-Mod company would be under tremendous pressure to reduce their E-Mod. Most E-Mods are based on a three-year set of data. One good year or even two may not reduce the E-Mod enough if the employer had one extremely bad claims year up to four years ago.
Current Reserve Levels
The E-Mod system can be a good measurement of how a company performed on safety and loss reduction in the past. How would a company judge how they are doing presently? I would think it is the current reserve levels of all claims. Reserves = Total Incurred – Paid. I would be remiss if I did not count in what is paid on the closed claims as part of this figure. Calculating the effectiveness of a Workers Compensation program using the paid amounts on closed claims can be complex.

A Workers Comp adjuster setting reserves will usually consider the reputation of the employer. Please check out the Six Quick Methods To Reduce Your E-Mod Part I and II as some of the variables that establish an employer’s reputation with an adjuster. If your company does not have a working relationship with your adjuster, it can be a very expensive missed opportunity. Does your company have a written plan of action on how to handle Workers Comp claims – more importantly, have you shared those with the carrier’s claims staff?
One variable that will throw off this measurement is the claims that are less than 90 days old. An adjuster may set a very large reserve upfront and then reduce it 60 – 90 days into the claim. There would need to be a cutoff point for new claims.
Insurance Carrier’s Employer Data
Most insurance carriers’ claims departments track the performance of an employer on such goals as lag time, which is the number of days an employer takes to file the first report. There are many other employer variables tracked over time. Your claims adjuster is fed those figures constantly. What does your company’s performance variables say about your Workers Comp reputation? Most carriers will provide you with the data if you request it.
Bottom Line – Premium

This is the tell-all figure. Premiums paid should always be the focus of the performance. There are inherent dangers in using this figure only. If your company grows by 300% (congrats), then your premiums are going to grow significantly. We receive calls/emails from employers very often when their premium audit increased the premium by a large amount just due to a payroll shift or change in the classification of employees.
In the case of downsizing or payroll growth, a factor needs to be built that would lessen the effect of a payroll change. We have now come full circle as that would be your E-Mod. As I have posted previously, if you want to win the E-Mod game, you must play by the rating bureaus’ rules.
This post was more of a summary of a much larger post. I will post on the four measurements of success if you are self insured next time.
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