RISK ROUNDUP – You’ve heard many times that “Knowledge is Power.” We’re here to tell you that there is A LOT of power in having the knowledge of HOW TO check your Experience Modification Factor, also known as your Experience Modification Modifier.
Many businesses are not aware that this type of formula—when calculated incorrectly—can add unfounded overcharges to their Workers’ Compensation premiums.
For that matter, many businesses have no idea there is anything they can do about saving money on Workers’ Compensation costs.
Adding more confusion to the equation is the fact that your Experience Modification Factor and your Workers’ Compensation Codes actually AFFECT each other.
So… if either of these is wrong, you’re going to be paying WAY more than you should have to.
But, for right now, let’s try to begin at the beginning…
How to Check Your Experience Modification Factor: Lesson 101
The National Council on Compensation Insurance (NCCI) is the organization responsible for calculating your Experience Modification Factor.
(You could say the NCCI is like the Wizard of Oz of Workers’ Compensation… Or maybe not. But we have to have a little fun in this dry-as-dirt, nearly-impossible-to-explain post.)
OK, so, the NCCI takes your payroll amount versus your losses amount and THEN they compare it to other businesses in the same industry.
They are comparing it to YOUR industry as a whole.
This is your total payroll for your entire business versus the amount of losses or Workers’ Compensation claims that you have.
Again, they take this information and they compare it to other people in YOUR exact field.
If you’re a lumber company, they compare your figures to other lumber company’s figures.
If you’re a trucking company—etc. If you’re a telecommunications provider—etc.
I can tell you’re with me so far—and you’re saying to yourself, “This is not hard to understand at all.” But that’s because you are really smart. (I had to have someone explain this to me 20 times.)
Your Unique Experience Modification Factor
YOUR Unique Experience Modification Factor is then put on your Workers’ Compensation Insurance policy.
If you have a really good loss record—meaning hardly any claims—then you’ll have a good “modifier” number.
If you have a bad loss record—with a lot of claims—then you’re going to have a number that you don’t like so much.
And you’re going to have to PAY more for your Workers’ Compensation policy.
The NCCI also has a system of “credits” and “debits” based on your formula.
If you have a high payroll and low losses and your Experience Modification Factor (or modifier) is less than 1, then you get something called a “debit” on your Workers’ Compensation.
For example, if your modifier is .85, then you’re actually getting 15% back because the Wizard of Oz can see that you’re doing good with your losses.
BUT… if your payroll remains the same and then your losses go up really high, and that modifier goes above 1—then you’re gonna get what’s called “credited.”
BUT… BUT… you’re not really getting a credit—you’re gonna get charged for that.
(Is it just me or do these not sound like they are the opposite of what-was-previously-known-as-credits-and-debits?)
Okay. You’re now at 1.15. You had .85 and then you went to 1.15. This is horrifying! This means that not only are you going to pay your basic premium—you are going to have to pay that amount PLUS 15% more.
For those who are math challenged (like me), that was the 1—and then .15 over the 1—that got you the bonus charge of PLUS 15%.
The Wizard is punishing you because your losses are not performing like they should be based on your payroll.
You are having a lot of losses compared to most people in your industry with similar payrolls.
Is there anything you can do?
Yes, you cut your losses!
We don’t mean quit—we mean get on the Safety Train and get some classes and videos in there. And perhaps check out buying some new equipment if everyone is getting hurt on the same piece of machinery.
Is there anything else you can do?
How to Check for Common Errors in Experience Modification Factors
You should go through your NCCI Worksheet with a fine-toothed comb. (Translate: You need to actually “do” what that cliché “means.”)
Make sure that they’ve (NCCI aka Wizard) put in all the correct Workers’ Compensation Class Codes for your employees.
This is known as “Cracking the Code.” (Not really. I just made that up.)
And most of all, you want to make sure your payroll has been entered correctly.
I’ve been told that’s where many of the unfounded issues are found. (Actually, I was told that’s where the issues were found, but saying unfounded issues and then found was too much fun to pass up. But this is NOT about me… Sorry)
IF your payroll was put on the worksheet incorrectly, it’s going to have a very big positive or negative effect on your premiums.
And your payroll is just one of a (too-complicated-for-me-to-understand) series of “little factors” that go on the worksheet and then “get multiplied out” to create Your Unique Experience Modification Factor.
(At this point, you’re realizing you probably need professional help—and you may think I do, too. Just bear with me a few more sentences.)
IF your company is REALLY a Number 1, but it’s classified as 1.5, then you’re actually paying another 50% of premiums! HELLO!
BUT, if you have a .5, that means you’re getting 50% BACK. And that’s REALLY good news!
ALWAYS double-check all the information related to your Experience Modification Factor.
That just makes good (dollars and) sense!