In NC, employers with 3 or more employees are required to buy a workers compensation insurance policy. Most employers will also eventually learn about the experience rating plan in NC and the tool that implements it, called the experience modification factor. We call it the experience mod for short and this little tool will leverage your attitude about employee injuries to either become a huge money saver or cost your company big money. Understanding how your mod works and how it is calculated will load the odds in your favor that the leverage here works in the right direction for you. This article is can help you do just that.
The experience modification factor is the tool that puts into action the concept of experience rating in North Carolina workers compensation insurance. Experience rating is simply allowing each company to have their own workers compensation rate that reflects their past loss experience. This kind of rating plan is generally a very good thing for employers who want to protect their workers and keep injuries at a minimum. For those who aren’t, the experience mod can be a brutal punishment. But when you think about it, it is a much fairer system to reward careful employers and not force them to pay for all those losses that the careless ones generate.
Your experience mod is simply a modifier on your policy that is applied to your total premium to better reflect the loss experience that you have had in the recent past/ With a mod that is larger than 1, you will be paying an additional surcharge on your policy for your past losses. If your mod factor is lower than 1, and then you are receiving a discount for good past loss experience. With mod factors running as high as 3.25 and as low as .72 or even lower, the range from reward to punishment can be huge.
Not all workers comp policies in NC are eligible for experience rating. There are two factors involved, time, and premium size. First of all, the experience must develop over time, so your policy must be in place for at least 2 years before an experience period can be evaluated. Companies that are new in business and buying their first workers compensation policy, won’t be experience rated during the first two years. The second criterion is size of the business, measured by workers compensation premium. Very small work comp policies may never reach a large enough size to be eligible for experience rating. This is due in part to the costs of experience rating a company and the unlikelihood that past experience will accurately predict future experience with very small companies. Therefore, employers are not experience rated unless they have had an average annual work comp premium of more than $2500 for the past two years, or have payrolls in the last year, or two years that would develop a premium that exceeds $5000. But once those thresholds are hit, your workers compensation policy will be experience rated by the NC Rate Bureau.
The experience rating process looks at losses during the experience period. That period is usually 3 full years, ending one year prior to the effective date of the modification. For example, a modification done on January 1, 2010, would look at the payrolls and losses for the prior policies effective January 1, 2006, January 1, 2007 and January 1, 2008. As you may have already guessed, a year of bad losses on your is going to hang around and increase your mod and thus your total work comp costs for a long time to come.
One more important aspect of experience rating for you to understand is just how your modification factor is calculated. The formula for deriving the mod itself is fairly complex so I won’t get into much detail, but as an employer, you should know a few important things about this process. First, small losses have the greatest impact on driving your mod higher. The formula classifies all losses under $5000 as primary losses and these losses carry the greatest weight in the formula, especially for small employers. Larger losses are capped and then given increasing importance for larger employers, but for the little guy, the small losses will sting the most. The message to small employers is clear – loss frequency is the strongest measure by which the NC Rate Bureau will punish you via your experience modification factor.
In the past, some employers would pay the small medical only claims out of their pocket, just to keep from reporting them to their workers comp company and risk driving up their mods. This practice is dangerous for both the employer and the employee and to remedy this, NC now only applies 30% of the medical only losses to the rating formula. Those still engaging in this practice probably don’t even know the risks that they are taking and how the mod rating process has changed. Please file all work comp claims with your insurance company promptly. Paying them yourself could leave you vulnerable if the claim spirals out of control and the insurance company decides that you prejudiced their ability to control the loss.
Your best approach to your experience modification factor is to work to help keep claims from happening, and then if they do happen, take appropriate action to help your employee get healed and get back to work as quickly as possible. You can go a long way toward both of these goals if you purchase your workers compensation insurance policy from a specialty insurance company, one that writes only workers compensation insurance. These companies usually have a more streamlined claims process and many also have on staff doctors, nurses and case managers. This kind or proactive approach to reducing your claims costs will help you keep your experience modification factor as low as possible. Also, these specialty workers compensation insurance companies will also have loss control services that you can implement right away to prevent some claims from happening in the first place.
Your experience modification factor is a way to even the playing field and to help make sure that those causing the accidents and injuries are the ones who pay the greatest share of their costs. Take advantage of your new awareness now to make sure that you move yourself and your company to the credit side of the experience mod equation. Here at Clinard Insurance Group, we help employers all across NC save money on their workers compensation insurance. We understand this complicated insurance policy and we will take as much time as you need to understand all of your options so that you can best leverage the marketplace to better protect your employees while reducing your insurance expenses. If we can help answer your questions about NC workers compensation insurance, please call us, toll free, at 877-687-7557 or visit us on the web at www.ClinardInsurance.com.
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