Most business owners and managers know what an experience modification is and that it increases or decreases the cost of workers compensation insurance.
For a refresher, here's a quick "experience modification" definition, from the WCIRB (Workers Compensation Insurance Rating Bureau)...
An experience modification rate, which is expressed as a percentage, compares the loss or claims history of one company to all other companies in the same industry that are similar in size. Generally, an experience modification of less than 100% reflects better-than-average experience, while an experience modification of more than 100% reflects worse-than-average experience. Accordingly, an experience modification that is greater than 100% usually increases the cost of an employer's workers' compensation insurance premiums, while an experience modification that is less than 100% usually decreases the cost of an employer's workers' compensation insurance premiums.
But here's what you may not know...
It's a competition between same-classification businesses.
The experience modification system, rates and compares all employers assigned to a particular industry classification. The total projected annual work comp claims, and estimated annual payroll, for a particular classification code are used to determine an estimated annual premium needed to profitably insure those anticipated losses in the state. Experience rating is then used to allocate the projected work comp premium fairly among employers assigned to the particular classification.
By the very nature of the experience allocation, one employer will pay a rate that is the lowest in the state, while another will pay a rate that is the highest...with everyone else paying rates somewhere in between.
Yes, it's a competition. Businesses win financial incentive dollars by operating more successfully (without workplace injuries) than their peers.
California mandates this direct financial incentive to reduce work-related accidents.
Direct from the WCIRB...
California's workers' compensation experience rating system is a merit rating system intended to provide employers a direct financial incentive to reduce work-related accidents. The experience rating system objectively distributes the cost of workers' compensation insurance more equitably among employers assigned to particular industry classifications.
The incentive comes in the form of lower work comp cost, increased EBITDA, and increased profit. Experience rating is a legislated, mandatory, merit rating system in place to reward safe companies.
There are additional incentives.
Businesses with a low experience modification often carry a higher market value than their higher-mod peers. In addition to the increase in EBITDA and profit, the claim-free company typically deploys a more goal-focused workforce. This team is not distracted by duties and administrative tasks that derail their competitors. Also, the resulting drop in absenteeism and turnover, the increased productivity, improved quality and better employee morale are all monetizable.
Most importantly, the team that masters the elimination of workplace injuries, and overcomes a high experience modification or workers compensation claims challenge, becomes a team empowered to take on just about any challenge the company faces and win!
How do you get and keep a low experience modification?
The shift to a low experience modification begins with identifying the processes, systems, and behaviors that are driving injury costs. Once those are identified, the team is educated and empowered to shift the culture and to start eliminating claims.
Existing open claims are audited to determine the action plan to close them and the appropriateness of the reserves. Guidance regarding on-site actions to be taken is provided and ongoing.
Technology is deployed to monitor injury and claim outcomes and trends in real-time while saving hours of administrative time.
With this approach, correctly administered, work comp claims typically begin to subside in as little as 2-3 months or less.
VANTREO's CompZone™ team delivers the specific service and strategy needed to lower experience modifications and work comp cost. We introduce a simple strategy to help internally change how things are done, shift company culture, eliminate injuries, and significantly reduce the cost of those that do occur. Let us show you how this will work for your business. Learn More. Pricing.