The workers compensation experience rating plan is designed to either increase or decrease an employer's workers compensation insurance premium based on its own historical loss experience. The experience rating plan gives employers the opportunity to help manage their own expense and provides a method to tailor the cost of insurance to the individual characteristics of an employer.1
The plan compares an insured's workers compensation loss experience with the loss experience of other insureds that have comparable operations and payroll classifications, and establishes an individual experience rating modification factor (a "mod").
In general, an employer with better-than-average loss experience receives a credit mod (mod of less than 1.00) which reduces its premium. An employer with worse-than-average loss experience receives a debit mod (mod of greater than 1.00), which increases its premium.
Cost Control through Claims Management and Loss Prevention
The key to controlling costs is to improve loss experience, which will improve the mod. There are several steps, including proactive accident prevention and claims management, that can be taken to improve the mod.
The mod is calculated based on payroll and loss data that insurers report to the rating bureau. Reporting inaccurate or incomplete data can lead to an incorrect mod. Obtain a copy of this mod worksheet and review the loss and payroll data for accuracy.
Establish a Safety Committee, create a safety program, and enforce the rules. Set safety performance goals for supervisors and managers. Implement a companywide reward program for reduced claim frequency. Offer incentives to your employees for specified injury-free time periods or no lost time injuries.
Train each employee in the safety requirements of the job as well as their responsibility for safety, and enforce compliance with these responsibilities. Training should be ongoing. Frequently communicate the importance of safety to employees.
Take advantage of loss control and safety programs offered by your insurer that deliver the best outcomes and cost savings.
Maintain a clean work environment. Perform routine safety checks and maintenance on all machinery and equipment. Implement a self-inspection and accident investigation program.
Perform job analysis. Determine job specifications, including any physical requirements of the job. In the hiring process, follow these requirements consistently to avoid claims of discrimination. Hire employees who are both mentally and physically fit for the job.
Maintain an alcohol and drug-free workplace. Use alcohol and drug testing in the hiring process. In the case of an accident, require that the employees involved be alcohol and drug tested. Conduct random alcohol and drug testing.
Review loss runs for similar type claims, and work with your insurer's loss control department to make changes to your processes to reduce the frequency of these claims. Pay close attention to tasks that seem to repeatedly cause injuries, and change the nature of these tasks.
Be alert to unhappy or disgruntled employees and deal with Human Resource issues as soon as possible.
Establish a working relationship with an experienced workers compensation attorney who will provide prompt access to advice on workers compensation issues that arise.
Report all claims promptly to your insurer. Work with the insurer to determine the fastest, most efficient way to report claims. Communicate with insurers on all claims reported (no matter how small) and work with them to provide prompt treatment.
While all claims need to be reported to the insurer, consider obtaining your insurer's permission to pay small (under $500) medical-only claims out of pocket. The availability and impact will depend on your state and your insurer, but this will help keep small losses out of your experience rating. (Smaller claims paid out of pocket still need to be reported to your insurance company.)
Communicate to your employees the need to immediately report injuries to their manager or supervisor. Train supervisors and managers on their responsibilities when an injury occurs, on claim reporting procedures, on how to communicate with injured employees, and how to help them obtain the care and support they need.
Implement an ongoing claims management program to manage outstanding reserves and focus on efficiently closing open claims. Reserves vary depending on the type of injury, seriousness, and duration of the claim. Review loss information and challenge outstanding reserves that you feel are not reasonable. Losses remain in the experience rating formula for 3 years, and open claims need to be monitored.
Rating bureaus typically use loss data valued as of 6 months prior to the effective date of your mod. Review your loss runs on a regular basis, and have your claims administrator establish periodic meetings with your claims adjuster to review claims above a certain threshold, such as claims greater than $5,000. At a minimum, have an annual claims review meeting with your insurer before they submit your loss data the rating bureau.
Routinely attend the conferences held on your cases at your division of workers compensation.
Depending on the state, the employer may have the right to choose the doctor to treat workers compensation injuries. Before injuries occur, choose a doctor who will be the first-line doctor for your business. Look for doctors with occupational health experience as they understand treatment protocols for work-related injuries and the benefits of returning the employee to work. The right physician providing the right treatment at the right time is essential to controlling costs.
When possible, use one physician for all work-related injuries. Ask the physician to come to your facility and learn about the nature of your business, which will help him or her enhance the firm's return-to-work program.
Build a referral network of preferred specialists to which your first-line doctor can refer employees, if needed.
Maintain positive communication with the employee and the doctor. Follow all restrictions imposed by the physician on the employee. If the physician has released the employee to return to light duty, find a place for the employee in your workforce.
Assign an injury management coordinator who will keep everyone involved with the claim (such as the employee, doctor, claims adjuster, and employer) informed and moving in the right direction.
Implement a return-to-work program that is appropriate for the scope of the injured employee. Provide transitional duty programs that help injured employees return to a productive position as soon as medically approved. Implement a light-duty program for injured workers to be able to return to the workplace quickly.
If an employee is injured by a third party, make sure your insurer is subrogating the claim against the third party, which will reduce the amount of your workers compensation claim.
Improving your loss experience will improve your experience modification factor which will reduce your premiums. An improved mod may make your operations appealing to more underwriters, may provide you with rate deviations or loss sensitive rating plans that may not otherwise have been available to you; and overall will reduce your costs of doing business.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
1 The Albert Risk Management Consultants claims management team (Glenn Brown, Lisa Hartman, William Quinn, Jr., David Ackerman, and David A. Tweedy) contributes articles on claims topics.