Nothing Like Other Insurance
Unlike other lines of insurance an employer might purchase, workers’ compensation is far different. For example, if an employer has an auto or property claim, there is no mechanism for the employer to pay back that claim to the carrier.
You may say a deductible and your rates may increase, but that’s it. With a work comp claim, however, every claim is paid back to the insurance carrier over time. The reason is due to the experience modification factor (ex mod).
On an annual basis, employers are assigned an ex mod. This is used to calculate how much they will pay for work comp coverage. A mod of 1.00 means the employer pays 100% of their premium. The employer pays less if they have a mod under 1, and pay more for a mod over 1. Every claim you file impacts your ex mod.
For medical-only claims, the claim can be reduced by 70% on the ex mod if the employee is able to return to work within the 3 day waiting period. This is know as the 70% rule.
The cost to the employer can be quite large if the claim incurs even a few days of lost time. Small claims can affect the ex mod at a more costly rate than larger claims due to what is known as the split-point. A certain amount of the claim is paid back in full and the rest is paid back at a discounted rate.
Split point claims can result in you paying back a higher rate for claims.
Price shopping is the consumer’s way of keeping the insurance companies accountable for their pricing. While it’s not a a bad way of thinking, it’s not the only thing to consider to keep rates low.
The best way to lower your work comp rates is to have proper employee injury and mod management practices in place, including a hardy safety and loss control program. Inevitably, people will get hurt and it’s important to keep a return to work procedure in place.
While this is a lot of information to consider, this is just a fraction of the procedures that need to be in place to ensure low premiums.