Have you ever noticed how almost everything depends on your perspective? It kind of works that way with workers compensation experience rate factors too! A 1.2 Emod may be horrible for one employer but not so bad for another. A .90 may be great for one employer and not so good for another. Lets take look at the relationship between Experience Modification Rates, an employers perspective and the Perfect Mod.
The EMR is a factor developed from the application of an experience rating formula which uses any individual employers workers compensation loss history experience, payroll history and certain rating factors depending upon the employers correct classification. It’s not a simple calculation and there are many variables that apply. Some folks look at the EMR as a report card and it’s quite easy to see how that may apply as claims and loss history greatly impact the experience formula. An employer with a credit mod of say .90 earned that by operating a safer work environment while an employer in the same industry with a debit mod of say 1.10 may not have had as safe an environment.
Of course there’s a great deal of discussion about this topic. Accidents happen! What if an employer who consistently operates a safe, claim free business all of a sudden has a large workers compensation claim? The EMR calculation formula has been designed to take into consideration “shock type losses” and discount their overall effect. It’s the employer with frequent claims, whether of a small or large nature, that earns a higher EMR.
But lets get back to the topic of perspective. Is an Experience Modification Rate of 1.0 good? It depends on the history. You must consider the current Mod within the context of where the employer’s been. If the 1.0 is an improvement from the last several years, then yes, a 1.0 may be good. If history shows lower mods and the 1.0 is now the highest in several years, then no, that’s not a good sign. It’s called trending. You must consider any current Mod Factor within the history of any specific employer.
Another consideration. A 1.0 mod is considered the norm within any specific industry. You see, you should not lump the experience of different types of businesses together. For example an office exposure, like a dentist office, will have different overall loss experience than that of a roofing contractor. So an Emod must be developed in relationship to other, similar risk exposures found within the same industry.
Then a 1.0 mod is not necessarily a good thing. An employer with a 1.0 just means they have normal loss experience within their industry, nothing to write home about! It means they have incurred workers comp claims or losses. It means there’s room for improvement. It means they have not yet achieved their “perfect mod.”
What’s a “perfect mod?” It’s the lowest mod an employer can possibly have. It’s the EMR for any individual employer who has gone claim free within their experience period. Again, the EMR is very specific to each individual employer and will not be the same for other employers.
The importance of achieving your perfect mod. While many employers struggle with experience rating issues and out of control EMR’s, to some, the very fact that their mod has gone above 1.0 may be critical to the survival of their business. I’m talking about construction employers who provide work on certain government contracts. I’ve written about this in many other blogs but thought that this would be a good place to again point out the importance of maintaining control over the experience modification factor. Many government contracts require the performing contractor to maintain a 1.0 or better EMR in order to keep their contract. If anything, this single fact drives home the point that an employer should strive to achieve their perfect mod.
Is it really possible to achieve the “perfect mod?” Yes it is! The path to a “perfect mod” is a claim free path!
To learn more about workers compensation claims, experience modification rates and other workers comp issues just visit our website! And if you need help with a workers comp problem just contact our office!
Hope this helps you out!