A single line on an actuarial report.
$25,000 out of your company’s pockets.
That’s the kind of impact an experience modifier can have. In the first installment of this series, we examined how ex-mods could cause two seemingly identical organizations to pay two vastly different workers’ compensation insurance premiums.
To reiterate: Your ex-mod is how your insurer evaluates your level of environmental health and safety risk. The more accidents your workers experience, the higher your risk. The higher your risk, the higher your ex-mod. And the higher your ex-mod, the higher your premium.
It’s a relatively straightforward concept, even for those of us who don’t exactly have a natural enthusiasm for insurance. But your ex-mod is also a story about your facilities, EHS program, and safety culture. Within that basic formula are 3 years’ worth of losses—actual and expected—as well as the organizational controls, vulnerabilities, assumptions, decisions, and consequences associated with those losses.
As such, your ex-mod can be a key indicator of your organization’s overall health and performance. Consider what your ex-mod could be telling you about each of the following factors in your bottom line:
1. Your Level of Legal and Regulatory Risk
Where your insurance provider sees uncertainty, so do regulatory agencies and plaintiffs’ attorneys. A high ex-mod could foreshadow legal claims of an unsafe working environment, as well as investigations, penalties, and more. In fact, agencies such as the California Occupational Safety and Health Administration sometimes identify targets for inspection by looking at “workers’ compensation claims and losses as reflected in ex-mods” (PDF).
2. Your Potential Reasons for Employee Turnover
Few people feel comfortable staying in an unsafe working environment. A high ex-mod, indicating increased potential for workplace incidents, also frequently coincides with high rates of employee turnover. According to the Houston Chronicle:
“An unsafe environment will probably make workers feel unappreciated. For instance, if the company provides inadequate training about operating machinery, allows minors to use heavy machinery or doesn’t enforce a safety code, workers will probably feel the company doesn’t care about their well being. This may lead workers to feel less loyal to the company and find work with companies that take better care of their employees. Fewer workers will probably apply to work with the company, too, and the most skilled workers will probably search for jobs elsewhere.”
Worse yet, turnover and unsafe working conditions are a compounding set of problems. New hires often lack the experience of the people they’re replacing, increasing the risk of an EHS incident. And as your organization focuses resources and attention on recruitment and onboarding, you may have less capacity to provide adequate training—leading to more incidents and, by extension, more turnover.
3. Your Trust and Brand Reputation With Consumers
From Nike to Blue Apron, companies occasionally make headlines not for growth or innovation, but for their unsafe working conditions. Every negative story about your company’s EHS program can damage your brand reputation and customer relationships. When consumers criticize or boycott a brand due to its treatment of its workers, there’s a good chance that company has a high ex-mod.
4. Your Leadership Team’s Priorities
Finally, think about how your ex-mod may reflect on your organization’s leadership. If your score is higher than the industry average, does that mean your leaders care less about safety than their competitors do? And even if they believe “safety first” is a myth (it’s not), how would they rationalize to the board of directors that extra $25 grand the organization is paying for workers’ comp insurance? Recognize a theme here? Your ex-mod may seem like an arbitrary number buried in paperwork but, like a patient’s heart rate or cholesterol level, it can signify a whole host of problems—problems other people start to notice. If you’re ready to take your EHS health into your own hands, you’ve come to the right place. In upcoming articles here on the KPA blog, we’ll explore ways to reduce your workers’ comp insurance premium and all its associated costs. But if you’d rather not wait until then, see how KPA’s comprehensive platform can transform your EHS outcomes today.