Question 1

Do All Businesses with Worker’s Compensation Policies Have E-Mods?

Accepted Answer

While claims on worker’s compensation policies are recorded and tracked regardless of the size of the company’s Workers Comp policy, in many states, such as our state of Pennsylvania, the presence of an E-Mod is reserved to companies with a policy premium that exceeds a specific threshold. However, companies with smaller premiums, say under $10,000, may still receive a rating factor. In the cases of smaller companies, this may be applied as a Merit Rating and can be either a fixed debit (surcharge), a credit (discount) amount, or simply flat (neither surcharged or discounted).

New start-up companies will have neither an E-Mod nor a Merit Rating at their inception because they do not have any experience in which to use to calculate the rating factor. In the case of E-Mods, once a Worker’s Compensation Policy is maintained for a few years, an E-Mod can be calculated based on factors which include the frequency and severity of claims, relative to the size of the policy premium.

Each industry will have varying maximums for the E-Mod that can be applied to the policy. For some industries, the lowest E-Mod may be .9 while best-in-class businesses in other industries may be able to capitalize on E-Mods of .8, or lower. How high E-Mods can go is also variable. Some “high-risk” industries may have a maximum E-Mod factor of over 2.0.

Question 2

How is an E-Mod applied to a Worker’s Comp Policy Premium?

Accepted Answer

In short, the E-Mod that is calculated for your business gets multiplied with your policy premium. In this way, a credit mod, or one that is below 1.0, provides you with a premium discount. To the contrary, a debit mod over 1.0 will serve to increase your worker’s compensation rates. Sometimes the increase can be significant.

Imagine multiplying your worker’s compensation premium by 1.5. At first glance, multiplying anything by 1.5 may not seem significant. However, it is important to realize that this E-mod factor increases worker’s compensation premiums by a staggering 50% over a company’s typical flat rate! In the case of large worker’s compensation policies, this can amount to a significant sum of money.

For example, a small manufacturing business that has a payroll of $1,000,000 may have a rate per $100 of remuneration (wages) of $10. If the company’s E-Mod is 1.0, they will pay $100,000 of Worker’s Compensation premiums annually. If the E-Mod increases to 1.5, that premium payment turns into $150,000. If the company has a credit mod of, say, .85, they can “save” a nice $15,000 off their premium each year.

Question 3

How are Workers Comp E-Mods Calculated?

Accepted Answer

E-Mods are based on a calculation that is influenced by the frequency and severity of claims and the size of the policy. However, it is also important to understand that your current modifier is calculated as an average of the last three years of experience. This means that a severe worker injury from two and a half years ago is likely still affecting your worker’s compensation premium this year.

At first glance, it might appear that E-Mods are just a way for an insurance company to penalize an employer for having a claim. In reality, the conversation requires a deeper look and more nuance. E-Mods play an important part in maintaining the sustainability of worker’s compensation insurance programs which serve the public good.

The genesis of worker’s compensation insurance was the idea that remedy needed to be provided to injured workers so that they would not have to be dependent upon the government when their injuries left them unable to work or they incurred onerous medical bills. In exchange, employers who carried worker’s compensation policies are provided with common law defenses and, with the exception of cases of excessive or gross negligence, cannot be held legally liable for the injuries sustained by their workforce.

E-Mods are a way to ensure that employers who have a disproportionate amount of claims, in terms of size or frequency, are required to pay more into the “pot” than employers who have no claims. When it comes to workers comp E-mods, the E-Mod system rewards employers who do not have claims by providing them with a premium credit for their positive experience.

In this way, workers comp E-Mods help to establish safer workplaces and workplace practices by monetarily incentivizing safety. A forward-thinking approach to workplace safety leads to cost-savings for an employer and a better place to work for employees. The nature of the rolling average encourages employers to help employees seek immediate medical treatment so that claims can be minimized, closed quickly, and ultimately, helps to ensure the severity of the claim doesn’t increase over time by either an employee, or an employer, ignoring it.

Category: Business Insurance

Is Civil Unrest Covered by Insurance and How Can it Affect Your Policy?

3 Steps to Building the Perfect Business Insurance Policy

3 Things to Know About Insuring Your Landscaping Business

5 Reasons to Review Insurance During COVID-19

Why Businesses Need Cyber Liability Insurance Now More than Ever

3 Factors That Affect the Cost of Commercial Insurance Policies

3 Risks of Having the Wrong Commercial Property Coverage

General Liability vs Professional Liability – What Type of Insurance Do You Need?

How to Manage Multiple Contractors in the Workplace

3 Insurance Considerations for Contractors in the Workplace

What to Consider During Your Business’s New Year Insurance Review

3 Types of Worker’s Compensation Benefits

Understanding Workers Comp E-Mods