We’ve had an accident. These four words are something no businessperson wants to hear. Workplace accidents are not just potentially devastating to your employees but they can also be very detrimental to the survivability of your organization.
Today I would like to share with you how insurance companies utilize various aspects of your companies performance as it relates to accidents to develop your companies experience modification and how a high ExMod can greatly impact your company.
Similar to auto insurance, companies that provide workers compensation compile data to provide you with a quote. Instead of information like your driving record and where you live, workers comp insurance companies look at things like your frequency of accidents, costs of accidents, severity, first aid claims, amount of payroll and how your experience compares to other companies within your industry.
As an example take two plastic goods manufacturing company with the same work comp code of 4478. The WCIRB (workers compensation insurance rating board) will compile information from both companies and through a complex process issue what is known as an experience modification rate, EMR or ExMod.
Company A has very few accidents, a strong safety program and does an excellent job of managing and closing their claims. In fact, they perform better than the average company within their industry.
Company B has been beset with injuries, some of them major. Besides that they have had three litigated claims and have been unable to manage or close the claims they have had. On top of that it was a slow year so their payroll was down affecting the amount of money used to fund their workers comp premiums.
Company A at renewal receives good news. Because they had a low frequency of accidents, have a strong safety program and manage their claims properly they received an Ex Mod of .85
Company B on the other hand, due to their work comp challenges received an Ex Mod of 1.40
In practice what this means is that Company A will receive a 15% rate reduction from the book rate for their code. So if the book rate for 4478 is $8.00 per $100 in payroll their rate would be $6.80.
Company B, on the other hand, will be paying a premium over the book rate for w/c code 4478. In this instance they will be paying $11.20 per $100.00 in payroll.
Now that might not seem like a lot of money but if both companies have $2,000,000 in payroll the difference in premiums would be $88,000 dollars. In business, this could mean the difference between being able to provide pay raises, purchasing new equipment or being in the black versus the red. Further, because of the way your ExMod is calculated, unless immediate measures are taken there is a high probability that Company B will continue paying a premium for years to come.
Now imagine you are a temporary staffing company, where for lack of a better phrase your product is people. For staffing companies the number one expense outside of payroll is workers’ compensation ( for other companies it might be raw materials, etc). For instance, in our case, our payroll might be 15 million per year! Imagine the premium we would pay if our ex-mode was above book rate!
Further, because there are few companies that write workers compensation programs for staffing companies our options are limited. Many a staffing company has bit the dust due to workers’ compensation challenges.
It is for this very reason (besides of course the safety of our workforce) that TeamQuest is so committed to safety in the workforce and risk management. For us, who we do business with, who we hire, and the jobs we place them in are of vital importance. Further, on-going safety training, safety site inspections, a strong claims management program and a good clinic are mandatory.
If you or your company would like further information on how to reduce the cost and frequency of claims or have questions related to safety training or any of the subjects mentioned in this blog please feel free to contact me. I can be reached at firstname.lastname@example.org or call me at 714-505-8100.