Similarities – E-Mods X-Mods EMR And Credit Score
A few weeks ago, I posted on E-Mods X-Mods EMR.
I received a large number of questions on E-Mods X-Mods, better known as Experience Modification Factors. The questions from the blog readers were the same type that I have seen over the last few years. I will not repeat the questions to avoid making the post too long.
Due to a large number of emailed questions on E-Mods X-Mods, I wrote this article in early 2010. This post and the one in 2010 show the importance of understanding the Experience Modification Factor process.
E-Mods/X-Mods can be thought of as a credit score. I thought I would compare and contrast credit scores and E-Mods. X-Mods/E-Mods seem to have a few mysterious qualities. I will try to remove some of their mystique.
We all have credit scores from the three major credit reporting agencies ranging from 400 – 800. Obtaining credit is almost impossible with a very low score. If any credit is advanced, the borrower or credit card user must pay extremely high interest rates.
Most E-Mods that I have seen are between .6 and 1.8. If a company with a high E-Mod wants to obtain insurance, the rates will be much higher if workers compensation insurance can be found in the regular insurance marketplace.
Insurance carriers report the claims data to a rating agency such as NCCI, WCIRB, or an independent state rating agency Creditors report your credit data to one of the three major credit reporting agencies
Both systems are based on lagging data. Credit systems have gotten better on being current over the last few years.E-Mods are based on past years data and use the E-Mod that was calculated six months prior to renewal.
You can obtain a free credit report once per year. Your insurance agent or rating bureau will usually provide an Experience Rating Sheet once per year, usually just before renewal. There is a cost to obtain either more than once per year.
Rating bureaus and credit bureaus are both reporting agencies. Neither one will correct the data that is reported.Borrowers must contact the creditor to have their credit data corrected and then reported again to the bureau. The same applies for a company trying to correct their Workers Comp insurance rating information. The carrier usually has to correct the data and report it to the rating bureaus.
If a consumer does not review their credit report carefully, they may be overpaying for credit due to inaccuracies on their credit reports. If the Experience Mod rating sheets are not reviewed carefully, an employer may be overpaying for Workers Comp coverage.
X-Mod/E-Mod Rating sheets can sometimes seem very complicated and confusing as there is a large amount of data and calculations on the sheets. I have seen Experience Rating sheets so large they could not be emailed. They could only be printed and mailed. My last credit report almost made my head spin as the three reports added up to over 150 pages. It was like reading a novel of numbers.
A reactionary approach to E-Mods and credit scores will not suffice for improving either one. Improving either one is best with a proactive action plan. A borrower that waits until they apply for credit to find out their credit scores may be in for a shock. The same can be said for an employer that waits for their renewal to review their E-Mod.
The best time to start working on a credit score for the future is when the report is obtained from the credit bureaus. The same can be said for E-Mods. Credit scores and E-Mods take quite some time to improve overall.
Credit reporting agencies and Workers Comp rating bureaus still make mistakes. This has improved over time. I think it is due to the tremendous amount of data that has to be processed accurately. Even .001% of a billion calculations still is a significant number.
Next Up – Differences between credit scores and E-Mods
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