The Higher Your Mod, Likelihood of Losing Business

Nothing can hit a company where it hurts more than an inflated experience mod. Yet employers rarely give it the attention it deserves, and as a result it doesn’t create the desired objectives, such as reducing workers’ compensation costs. And maybe the reason it isn’t on their radar is because many business owners just don’t understand it.

The experience mod is primarily based on losses over a three-year period, and many factors come into play to get a company’s experience mod to 1.0 (i.e. types of injuries on the job, time out of work, number of injuries, etc.), which is an “average” rating. The big question is why are employers content to have just an “average” rating, when they should be realizing that workers’ compensation costs are controllable.

The experience modification rating compares other businesses in your state workers’ compensation experience against industry standards for similar size and type operations. And for many companies in the construction industry, particularly those who see the bidding of projects at the federal, state and municipal level as crucial, they must maintain an experience modification of 1.00 or below in order to survive. Not to mention save themselves money.

Let’s say your experience mod is 1.0 and you are paying $50,000 in workers’ compensation costs. Just by putting forth the effort to lower it to .80, you are going to save approximately $10,000 and give your company the best chance of landing that huge new contract. This also means money going out of your pocket is now staying in your pocket. So in essence, what you have done is make money by lowering your experience mod.
We recently worked with a mold-making company that was in the midst of an ownership change.

The company didn’t look particularly attractive to the potential buyer due to a series of open claims which had driven their experience mod up to a staggering 1.7, with annual premiums of approximately $75,000. The potential buyer enlisted us to investigate what the issues were. It was found that the prime culprits were seven or eight open claims. We stepped in to close out the claims as well as set up a safety committee consisting of the company’s owner, supervisors and employees. There were also incentives put into place for employees who kept injuries to a bare minimum. As a result their experience mod quickly dipped to 1.4 and their premiums to $40,000, with both expected to drop even more.

When it comes to job safety—a determining factor in deflating your experience mod and a topic that can’t be stressed enough–it’s important to understand that the old saying “accidents will happen” isn’t true. Sure you could be walking through a plant and a light bulb might fall on your head, but it’s unlikely. However, when a worker loses a hand because a safety guard was not used, that’s different. In this case “accidents will happen” should really be “accidents could happen.” Because any accident that “could happen,” could also have been prevented.

A job safety program is an investment in your employees. It’s about creating a caring workplace focused on employee well-being and safety. It protects your staff and saves you money, making it a win-win for workers and leaders alike. But like any new program, your employees will likely initiate some pushback. They need to buy into the program in order for it to work the way it is intended. This entire initiative needs to be leadership driven. After all, if the boss doesn’t care, why should they? If your employees see that you are truly interested in the success of this project, most will follow suit. And you will see results on your bottom-line.

Here’s a good example. A worker on a construction site hurts his back and goes out on workers’ compensation. The primary insurance cost is $1,241, which stays on the experience mod for three years, finally totaling $3,723 in insurance costs and a rise in their experience mod. Now, if Mr. Bad Back had returned to work in any type of light duty, the actual loss penalty would have been reduced by 70% to $372, or $1,116 over the three years. A total reduction of $2,607 over the life of the claim.

The problem, and we see it all the time, is that many employers believe that when an employee is getting paid by the insurance carrier that they are actually “saving” money because the injured party is only receiving two-thirds of their pay once they are taken off the payroll books. After all, they think, “Isn’t that why I pay insurance, so I don’t have to pay injured employees?” But what many fail to realize is that the injury claim sits on their books for three years, like a festering sore, getting worse and worse, while the employee is sitting home watching daytime TV with personal injury ads telling them they should sue (“Call us today at 1-800-GET-PAID!”).

If job safety and a good return-to-work program are in place, then proper claims management creates the workers’ compensation triumvirate. Bottom-line is that employers need to take charge of the claims management process, because if they rely solely on the doctor, the insurance company or maybe even the employee himself to follow up on these claims, the fallout is going to be expensive.

If a company has a head-in-the-sand mentality where nobody on the job is paying attention to new claims, verifying the severity of those injuries, and staying on the doctors and insurance carriers for constant updates, as well as frequently checking in on the injured worker, then nothing good is going to happen. You must be at the top of your game to make sure all procedures are in place to see that claims are managed properly and quickly before, as they say, it all comes back to bite you in the end. You must stay vigilant.

The experience mod drives your company’s workers’ compensation profile. Only by taking control of it and having the will and desire to be “better than average,” can you ensure that the road it drives you down isn’t the fast lane to financial ruin.

Randy Grabiak is a Commercial Account Manager with The Seltzer Group located in Mount Penn, PA. Randy’s goal is to partner with business and be proactive with their insurance and risk management by identifying and controlling the risk associated with their organization. He can be reached at or 484-512-0156.

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