risk mitigation Archives - Competitive Edge Insurance

If there’s one thing a business owner doesn’t want, it’s paying high workers’ compensation insurance premiums. One way to decrease the workers’ comp premiums that you pay, however, is by reducing your experience modification.

Below, we’ll chat about experience modification: What is it? Why should you care about your rating as a business owner? And what can you do to reduce experience modification, and therefore, worker’s compensation costs?

Let’s dive in.

WHAT IS EXPERIENCE MODIFICATION?

First things first, what is experience modification? Experience modification, according to The Workers’ Compensation Insurance Rating Bureau of California (WCIRB), is calculated by comparing a business’s actual losses to its expected losses.

Actual losses include “medical and indemnity claim costs resulting from a work-related injury that an insurance company has paid or expects to pay in the future.” Expected losses represent the amount of loss an insured party experiences compared to the amount of loss similar insured parties have.

Experience modification might also be referred to as a workers’ comp experience mod, an EMR safety rating (EMR stands for experience modification rate), or Ex Mod.

WHAT IS AN EXPERIENCE MODIFICATION RATE?

An experience modification rate (EMR) is assigned to every business that purchases worker’s compensation insurance. The EMR is a number that reflects the company’s past losses due to worker injuries. It is used by insurers to help predict future worker injury claims and to set premiums for worker’s compensation insurance.

There are various elements that can affect a business’ EMR. These can include:

The type of business
The number of employees
The industry, and
The state in which the business is located

Businesses with a high number of worker’s compensation claims will typically have a higher EMR.

FORMULA FOR CALCULATING EXPERIENCE MODIFICATION

Experience Modification = Actual Losses / Expected Losses

These losses involve several factors, including:

The number of worker injury claims filed
The cost of those worker injury claims, and
The amount of time that has passed since the last worker injury claim was filed

EMR’s are based on information from your insurance claims history, reported to the National Council on Compensation Insurance (NCCI), over the past five years. However, only claims from the past three years will be assessed by insurance agencies.

If you’re a newer business that has less than three years of claims history, your EMR is typically calculated at a base rate of one.

WHY SHOULD I CARE ABOUT EXPERIENCE MODIFICATION?

A business’s experience modification rate represents, numerically, how safe your business is compared to others in your industry.

Insurance companies use your ex mod to evaluate and measure the amount of risk they are taking on by having you as a client. A higher ex mod means paying higher workers’ compensation insurance premiums.

Standard ratings begin at one; one means your business is as safe as the average. For businesses who have had safety incidents, however, they’ll likely receive a number higher than one—perhaps a 1.2 depending on the accident or number of accidents. As for small businesses with spotless records, they might even score lower than one.

This considered, you might be asking yourself: How does my business fare? What is the highest experience modification rate possible? Workers’ Compensation Consultants tell us that any ex mod over 1.0 could be considered high if you’re comparing your business to its industry average.

In fact, “if you are comparing to the best performers within your industry, who may have very low mods, a 1.00 could be considered high.”

WHAT IS CONSIDERED A GOOD OR BAD EMR?

As a business owner, you’re always looking for ways to save money. Worker’s compensation insurance is one of those necessary evils that can eat up a lot of your budget if you’re not careful. One way to keep your worker’s compensation costs down is to maintain a good experience modification rate.

EMRs can commonly range between 0.48 to 1.25 or higher. The lower the rating, the better. A high rating, above a 1.0, is considered a bad EMR and will increase your worker’s comp premiums.

Again, worker’s compensation insurance rates are based on your company’s claims history. The more claims you have, the higher your rates will be. Your EMR is a way to measure this claim history and predict future costs.

A good EMR is one that is below average for your industry. For example, if the average EMR for construction companies is 0.85, a company with an EMR of 0.75 would be considered a good EMR.

HOW TO REDUCE EXPERIENCE MODIFICATION

So, how can you reduce or improve your experience modification rating? Below, we will provide you with some guidance.

IDENTIFY YOUR RISKS

The first step is to identify your risks. Each business will face its own unique set of them. Conduct a risk assessment to find out what your business’s risks are. As the adage goes, “you can’t fix what you don’t know.”

IMPLEMENT A KILLER SAFETY PROGRAM

At the core of a low experience modification rating is a stellar safety program. After all, no injuries or incidents equals no claims—and no claims equal the lowest possible EMR.

Now, before you doubt the effectiveness of a top-notch safety program, let’s look at the statistics. The Occupational Safety and Health Administration (OSHA) reports that “employers who establish safety programs (and return-to-work programs) can reduce costs related to workplace illness and injury by up to 35%.”

With reduced costs up to 35%, imagine how much more you’ll be saving on your workers’ compensation premiums. The basics of your safety program should include:

Safety Meetings
Safety Tests
Safety Equipment and Tools (i.e. safety goggles, safety shoes)
The list goes on

Safety, of course, will look different for every industry. The bottom line, however, is to provide and do whatever you can to prevent employees from getting hurt or sick.

So, ensure that employees:

KNOW HOW TO SAFELY PERFORM THEIR WORK

Don’t assume employees ‘just know’ how to do their job or work off the bat. As an employer, it’s your responsibility to train and teach your employees.

HAVE THE PROPER TOOLS AND EQUIPMENT

For employers with remote employees, this might be as simple as providing ergonomic office equipment to reduce carpal tunnel workers’ comp claims!

Read on to learn what workers’ compensation looks like for remote employees.

ARE REWARDED FOR SAFE BEHAVIOR

Consider implementing a safety-incentive program.

OSHA recommends safety-incentive programs, which reward “workers for reporting near-misses or hazards.” Safety-incentive programs typically reward employees for reporting unsafe conditions and making the workplace safer altogether. Programs “provide positive reinforcement for reporting illnesses and injuries.”

A FINAL WORD

Throughout all of this, it’s crucial to ensure your management and leaders are on board. Additionally, by documenting the safety measures you’ve put in place, the chances of lowering your EMR increase; thus, decreasing workers’ compensation insurance premiums.

Underwriters will be more likely to provide better terms and lower insurance premiums for businesses that document and articulate what they’ve done and the steps they have in place to reduce risk. Depending on the size of your business, you could save thousands of dollars.

It’s a win-win.

Read on for more information on risk mitigation: what is it and how can you do it?

In the world of insurance, you often hear the term ‘risk mitigation.’ But what does it mean? Let’s talk about risk mitigation: What is it and how can you do it well?

There’s no one better to ask than Brenda Jo Robyn, Founder of Competitive Edge Insurance. Here, we hand over the mic as she tells you what you need to know about risk mitigation as a business owner.

What is Risk Mitigation?

In its simplest terms, risk mitigation is anything an employer can do to make sure that they’re low-risk and not high-risk. When we say low-risk here, we mean not likely to result in failure, harm, or injury.

Still not sure about what high-risk is? Check out our blog to learn what classifies high risk.

Common Business Risks

According to American Express, the most common types of risk when it comes to running a business include:

Economic Risk
Compliance Risk
Security and Fraud Risk
Financial Risk
Reputation Risk
Operational Risk
Competition (or Comfort) Risk

We know, it sounds scary knowing that there are so many risks out there. But don’t worry—below we’ll explain tangible steps you can take to mitigate your risk.

What Can Business Owners Do to Mitigate Risk?

So, how can you mitigate risk as a business owner? There are many things that you can do to mitigate risk within your company.

Below we are going to list the top five most impactful things you can do to mitigate your risk.

Ensure You Have a Stable Employee Population

Firstly, ensuring that you have a stable employee population is crucial to your risk mitigation strategy. Having a secure and stable employee base also includes having a low turnover rate.

But how can you achieve this?

Brenda Jo recommends putting incentives and benefits in place to retain your employees. As an employer, you should additionally emphasize training.

Secondly, give your employees accolades when they’re due. Tell them how appreciated they are, and give them more responsibilities as their time with you increases.

“A lot of employees just want to know that they’re wanted,” says Brenda Jo.

Prioritize Safety

The second piece of the puzzle is to make sure that you’ve implemented a strong safety program. Depending on your industry, this might include:

Safety Meetings
Safety Tests
Proper Safety Equipment and Tools (i.e. safety goggles, safety shoes)

The bottom line here is to provide resources and do whatever you can to prevent employees from getting hurt or sick.

Take a non-construction environment for example. You might work in an office building. As an employer, it would then be your responsibility to make sure that carpets are stapled down or secured with sticky tape underneath so that employees don’t trip. Easy!

In general, when it comes to safety, “what I would suggest,” says Brenda Jo, “is that you work on it with your broker starting 90 days out.”

In general, a good rule of thumb to follow is DON’T wait until the last minute to mitigate your risk. (Trust us, it’s not worth it!)

Here are some questions to get you started. Ask yourself:

What’s coming?
How are things changing?
What can we do to save money?
What can we do to place ourselves in the best risk?

Invest in Insurance

Making sure your business is properly insured is arguably the best way to mitigate risk. There are many different types of insurance that your business might need or benefit from.

Some types of insurance for businesses include:

General Liability Insurance
Commercial Property Insurance
Workers’ Compensation Insurance
Commercial Auto Insurance
Cyber Liability Insurance
The list goes on!

Insurance requirements vary on a state-by-state basis as well as an industry basis. Be sure to speak with a professional—like our team at Competitive Edge—to learn what you need to protect your business. Read on if you’d like to hear about four types of insurance coverage for your business.

Consider Planning that Can Be Done in Advance

Considering carriers, what kind of planning ahead can you do as an employer? Do you want to partner with a carrier that is going to help you year-round to make you more risk-tolerant?

If so, this carrier might be coming in to do inspections every other month, giving you recommendations on how to improve your site or how to improve your training, and the list goes on. The best part? Brenda Jo says that this type of support is typically free of charge if you get with the right carrier.

Take advantage of the resources available to you!

Implement a Safety-Incentive Program

What is a safety-incentive program?

The Occupational Safety and Health Administration, more commonly known as OSHA, recommends safety-incentive programs, which reward “workers for reporting near-misses or hazards.”

Safety-incentive programs typically reward employees for reporting unsafe conditions, making the workplace safer altogether.

Programs as such “provide positive reinforcement for reporting illnesses and injuries.”

A Final Word

Don’t let risk mitigation slip by the wayside. After all, proper risk mitigation helps to reduce your insurance costs. And let’s face it, who doesn’t want to benefit from lower insurance costs?

Interested in learning more? Read on to learn what to expect in terms of premium increases and risk mitigation this year or about insurance requirements for business owners.

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How Do You Reduce Experience Modification?