Workers Comp may be my favorite type of insurance because it’s designed to help businesses keep premium costs low.
The ‘E-mod’ is the key to understanding this process, and a good grasp of the E-mod can help businesses unlock consistent, year-after-year premium savings.
What is E-Mod?
‘E-Mod’ stands for ‘Experience Modification’. It is a multiplier on your Workers Comp insurance that influences the final premium. The E-Mod has two main purposes.
- Tailor cost of WC to each individual company – If your ‘loss experience’ is poor, the mod might be 1.5. If you have little-to-no losses your mod might be 0.8. Using these figures, a $20,000 base premium can fluctuate from $16,000 (0.8 x 20k) to $30,000 (1.5 x 20k).
- Provide added incentives for loss reduction – That ‘tailored rate’ motivates employers to maintain high safety standards. The insured is penalized or rewarded based on individual loss experience.
How much loss experience taken into account?
Does the Workers Comp governing authorities (NCCI) look at the loss history of the past 1 year, 3 years, 5 years, or 10+ years?
The E-mod figure is based on the 3 prior years of loss experience.
Which is worse…loss frequency or loss severity?
Loss frequency is more punitive that loss severity.
A construction company that has had three $15,000 claims over three years will have a higher e-mod than a contractor with a single $45,000 claim.
How do I know where my E-mod stacks up to others in my industry?
For any industry, the E-Mod standard is 1.00.
Let’s say roofing contractors (as an industry) average $10,000 in Workers Comp claims…that E-mod would be 1.00.
So if a roofer has $14,000 in losses, he can expect the e-mod to be roughly 1.4.
Moral of the Story…
Keep your e-mod low (.8 or lower), and you will be in good shape on your Workers Comp premium.
If your E-mod has been consistently high or average (1.00), reach out and I’ll provide additional insights that could unlock major premium savings.