A well-organized safety program benefits not only your employees, but also helps reduce Workers’ Compensation premiums. One major frustration business owners face with commercial insurance is that increasing rates are often out of their control. Whether due to collective loss history, rising inflation, or other factors, premium hikes are predictable yet frustrating. However, one controllable factor can significantly impact workers’ comp premiums: the Experience Modifier.
What is an Experience Modifier?
The Experience Modifier (e-mod) is a factor insurance companies use to adjust a business’s workers’ compensation premium based on its safety record compared to others in the same industry. Generally, any company that has had workers’ comp coverage for 3 years and spends an average of $3,000 per year is assigned an e-mod factor. Essentially, insurers calculate an experience modification number for each business—typically between 0.50 and 2.00—based on that company’s claims history. While the math behind it is complicated, the principle is not: the lower your e-mod, the lower your workers’ comp premium.
An e-mod of 1.0 represents the industry average, so getting your e-mod below 1.0 results in a credit on your next workers’ comp renewal. For instance, if a company currently pays $100,000 in workers’ comp premium with a 1.0 e-mod but gets it down to 0.8, their premium will drop to roughly $80,000. Conversely, a higher e-mod, say 1.5, will raise the premium to roughly $150,000. The impact of a small change in this number can dramatically affect the total premium.
What business owners appreciate about the e-mod is that it is one of the only objective, controllable factors in insurance. While many elements of commercial insurance rates depend on subjective factors—like an underwriter’s assessment or industry trends—the e-mod is 100% objective, giving business owners the opportunity to decide how much they want to do to directly influence their company’s workers’ comp premium.
Tips for Reducing Your Experience Modifier
The key to lowering your e-mod—and thus your workers’ comp premium—is improving workplace safety and minimizing claims. Here are several strategies that have proven effective for businesses:
- Establish a Robust Safety Program: Implementing a comprehensive safety program is one of the best ways to prevent injuries. This should include regular safety training, maintenance of equipment, and fostering a workplace culture that prioritizes safety.
- Early Injury Reporting and Return-to-Work Programs: Encourage employees to report injuries immediately to prevent minor incidents from escalating into costly claims. Also, having a return-to-work program can help injured employees get back to work in modified or light-duty roles, reducing the overall cost of claims.
- Regularly Review Your Claims History: Auditing your claims history helps identify patterns or recurring problems. Focus on addressing the root causes of these issues through targeted safety measures to prevent future injuries.
- Partner with Your Insurance Agent/Broker: Insurance agents can provide valuable resources like safety consultations, training materials, and claims management support.
Conclusion
Experience Modifiers are a crucial factor in determining workers’ compensation premiums. By actively managing it through safety improvements, early injury reporting, strong claims management, and working closely with an experienced agent or broker, you can significantly reduce your workers’ comp premium. This, in turn, directly impacts your company’s bottom line, making it a worthwhile focus for any business owner looking to control insurance expenses.
Each month, Swarts Manning insurance experts cover relevant topics for your business. Stay tuned for more discussions about managing your insurance and industry-specific tips.
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