WC Rate Bureaus and The 1.01 Employer Conundrum
All Work Comp Rate Bureaus consider an employer with a 1.0 Mod as your average employer in reference to accident rates and severity. However, as I wrote in my last article millions are on the line if a Mod increases above 1.0.
Many employers are now feeling the pinch when their Mod increases or stays above 1.0. A few years ago the Experience Mod Rating formula was changed by NCCI. The Primary Loss part of the claim increased from $5,000 to $15,000.
The Primary Loss equates basically to the part of the Total Incurred that is not discounted. The Excess Loss has a discount factor that is applied to the reserves above the primary loss.
An E-Mod of 1.04 from the Workers Comp rate bureaus can actually have an employer shunned from bidding on governmental contracts. How do I know this is the case? Over the past few weeks and when I wrote the article earlier this week, I heard from quite a few employers with that very concern.
The work comp rate bureaus will usually say that we only process the numbers and generate Mods. That may be true, but now many governmental agencies and large employers producing bids think otherwise.
One of the bid considerations for major contractors and governmental agencies is having a 1.0 E-mod or STOP HERE and go no further before the employer produces a bid. It is not a bid consideration. It is a denial.
How should the Rating Bureaus fix the situation? They should not be responsible. The two parties responsible consist of the employer and the contractor.
A great suggestion to the Risk Managers would be to stop at the first number to the right of the decimal. For instance, a Mod of 1.08 equals 1.0. In my opinion, an employer with a 1.08 Mod is not that much riskier than an employer with a 1.0 Mod.
I have spoken to a number of Risk Managers that say – hey, I have to draw the line somewhere.
The other side of the coin points to the employers. Spending funds now for safety remains the answer. The expenditures will pay off in time. The business owners and the Senior Management of companies need to allow time for safety efforts to take effect.
Throwing funds at safety for one year and expecting the Mod to lower immediately is not the way the Workers Comp system works. Many safety managers and in fact, risk managers were shown the door because the company’s Mod did not move. The Mod process takes four years to show fully.
As the author Charles Givens once said in his book Super Self – if you want to win in someone else’s ballpark, you have to play by their rules. The Work Comp Rate Bureaus are the ballpark. A great Safety Program keeps you playing in your ballpark. No injuries mean you get you play in your ballpark.
J&L Risk Management Consultants assisted many employers to reduce their Experience Mods over the years. Other than a safety program, a full Loss Run Analyses brings down Mods as long as your company does not have a string of accidents.
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