Difficult to Bid On Contracts With A High X-Mod
Should we still bid on contracts with a high X-Mod?
I received this question two weeks ago and wanted to answer it. The rest of the question is – How do we reduce our X-Mod very quickly? We receive a large number of employer inquiries on reducing an E-Mod/X-Mod to 1.0 or below. In fact, I just received this question from a California employer yesterday.
A few main contractors and governmental units will accept contracts from an employer with an E-Mod of higher than 1.0. The unofficial cut-off point is usually 1.2.
I am now seeing more contracting companies that will only accept a 1.0 or lower E-Mod. Some governmental units only require that you have Workers Comp insurance without an E-Mod requirement.
I had posted on the E-Mod/X-Mod being the same as a credit score, but much worse. One of the main concerns is that you can change a credit score much more quickly than an E-Mod. There are no overnight ways to change your E-Mod.
The Experience Modification system keeps an employer from feeling the direct brunt of a very large claim. The X-Mod system does not forgive a series of small lost-time accidents.
The reason is 10 smaller claims are much more likely to have 2 or more of those claims turn out to be larger claims. Repetitive injuries will cost a company in the long run.
There are a few legal methods to change your E-Mod/X-Mod more quickly:
- Some PEO’s will allow you to take on their E-Mod/X-Mod. Understanding the PEO’s rules and current E-Mod is very critical. Your company will also need to analyze the complicated rules of coming out of a PEO arrangement.
- When the economy recovers, if your company adds on a large amount of lower risk payroll such as admin assistants and salespeople, your X-Mod may naturally lower.
- Make sure your insurance carrier understands that you have a safe workplace and that you are receiving your proper Scheduled Credits. This can save your company up to 25% of your policy.
- Become a self-insured insured organization. You will switch from an X-Mod system to calculating your own LDF’s.
- Make sure you know how your X-Mod was calculated and what claims are affecting your X-Mod.
- Enter into a captive arrangement. Unless your company is large, you will need to likely fund a rent-a-captive, usually offshore.
There are more ways to lessen your E-Mod/X-Mod. The ones I mentioned are in no way an attempt to game the X-Mod system. There are companies that will attempt to assist you in gaming the system.
Those methods may work in the short term. They will cost your company dearly in the long-term. The tortoise and the hare fable fits well. The Experience Mod system is a three-year corrective process.
The best way to reduce your X-Mod is to invest heavily in a safety program. The accident that never occurred will have a 0% effect on your X-Mod. There are many companies scaling back or eliminating their safety program. In the short term, the reduction looks great on paper. Three or four years from now, it will look like a disaster with your X-Mod.
Please note I used X-Mod and E-Mod interchangeably throughout this post. I have linked to any terms or articles that explain some of the ideas in this post. I did this to avoid a long boring article. I wanted to point out how a High E-Mod or X-Mod made it difficult for companies to bid on contracts.
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