Imagine the universe granted your company an additional $25,000 per year. How would you spend it?
You could buy equipment, or upgrade your existing tech. Maybe a new set of computers for the whole office?
What about marketing? With $25,000, you could rent multiple billboards for months. Or redesign your brand. Or produce a YouTube series.
Then there’s your workforce. An extra $25k could be sufficient to bring on an entry-level employee or two. Or fund a new training and development initiative. Or give everyone bonuses.
So many possibilities… and we haven’t even touched on some of the best options. You could hire a private chef to cook Friday lunches for a year. Or fly the team out to Las Vegas for a weekend. Or, how about finally making that childhood dream a reality and installing some arcade cabinets for the breakroom?
Now pause those fantasies for a moment and get ready for a potential (and potentially frustrating) reality. There’s a good chance that your closest competitor—the company most similar to yours in terms of size, region, and industry focus—already has that extra money.
That’s right: while you’re imagining all the ways $25k could change your business, those jerks down the street might already be playing Ms. Pac-Man.
Searching for a way to lower your Workers’ Compensation premiums? Start with this Study. The reason why? Believe it or not, it has to do with each organization’s environmental health and safety program. Specifically, your competitor’s EHS outcomes could result in a lower premium for workers’ compensation insurance.
Why Would Two Identical Companies Pay Different Workers’ Comp Insurance Rates?
Let’s say your company and your closest competitor look more or less the same from the outside (besides the arcade cabinets, of course). You both work in the same sector, you both have about the same number of employees, you’re both located in the same city and state, and you both serve the same kinds of customers. The risk of workplace injury at both organizations should be the same—and so your annual workers’ compensation premiums should be equal, right?
Not quite. To understand why, you’ll need to think like an insurer. Grab some caffeine (or a stronger beverage) because we’re about to define some jargon and do a little math.
While the number of your employees and the type of work they perform are indeed determining factors for your workers’ comp rate, they only factor into the manual premium. Your manual premium is the fixed, predetermined rate insurers set for your industry. The manual premium for automotive dealers, for instance, is roughly $70,000.
To determine your actual premium—that is, how much your company actually pays for coverage—an insurer multiples the manual premium by your experience modifier.
What Is an Experience Modifier?
Experience modifiers are the key differentiator between the workers’ comp insurance rates companies pay. An experience modifier is sometimes referred to as an “experience modification,” an “experience modification rate (EMR),” or simply an ex-mod.
Your ex-mod is determined by the frequency and severity of accidents at your workplace. The more accidents that occur, and the more serious those accidents, the higher your ex-mod.
Insurers calculate ex-mods by measuring expectations against real performance. If your company suffered exactly as many losses as an actuary expected you would, your experience modifier would be 1.0. If you suffered fewer EHS losses than projected, your ex-mod would be lower than 1. More losses would mean a number higher than 1.
More of a visual learner? Watch this video:
Determining How Your Ex-Mod Affects Your Premium
Your ex-mod is based on the number and severity of accidents your workers experience over a 3-year period. This period excludes the year before your current coverage expires. If your plan ends on January 1, 2020, for example, your ex-mod reflects the period between January 1, 2016 and January 1, 2019.
If you think of EHS as a sport (which it definitely is not, but the metaphor is useful here), your ex-mod is your running score. Like in golf, the lower your numbers, the better—and you don’t want to go above par (which would be 1).
Ready for some math? Fortunately, we’re working with easy numbers. If your industry’s manual premium is $70,000, the average company would have an ex-mod of 1.0, meaning they would pay $70,000 for insurance coverage:
$70,000 (manual premium) x 1.0 (average ex-mod) = $70,000.
But let’s say your competitor goes under par. They experienced fewer losses than the industry average, bringing their ex-mod down to 0.85. Now they’re paying less than $60,000 for coverage:
$70,000 x 0.85 = $59,500.
Imagine your company experienced more and/or more accidents than the industry average. Your ex-mod is 1.2, bringing your coverage up to $84,000:
$70,000 x 1.2 = $84,000.
Now let’s figure out the difference:
$84,000 (your coverage) – $59,500 (your competitor’s coverage) = $24,500.
And there you have it. That’s how your competitor paid for those billboards, or that YouTube series, or—yep—that Ms. Pac-Man cabinet.
If you suspect your company is missing out on low insurance rates (and bidding opportunities on eBay), don’t despair. Fortunately, your ex-mod is one factor you have control over. You can’t lower your manual premium, but you can lower your ex-mod. Over the next few weeks, we’ll show you how—and explore some ways you can build a culture of safety, reduce accidents, improve your reputation, and save even more money.
Don’t want to wait until the next article? See how you can start transforming your business today with a smart EHS compliance platform. Study: Safety Pays
Searching for a way to lower your Workers’ Compensation premiums? Start with this Study.