Surging worker compensation and employee liability insurance rates have caused many pallet operations and sawmills to rethink their insurance approach. Let’s look at how your Experience MOD can impact everything even though it really shouldn’t.
The Experience MOD is the score a company has when it comes to worker compensation insurance. This score comes from an insurance data and rating company, most commonly the National Council on Compensation Insurance (NCCI) among other such agencies. The Experience MOD is based on your claims, expected losses, company track record. It can keep going up every time a worker is injured on the job, an open claim is never closed, or an employee is misclassified on your payroll.
Even though job safety is the kryptonite when it comes to controlling your score, the Experience MOD was never intended to be used as a safety rating tool. It was created strictly for underwriting, premium calculations and other insurance purposes. But that doesn’t stop companies from using it as a requirement for securing bids. Every company starts out with an Experience MOD of 1.00, then this score changes based on the company history.
In truth, the practice of using the Experience MOD when it comes to the job bidding process should be irrelevant as a company’s injury scorecard from the previous three years, should not determine a company’s current safety standards. Still, it is not uncommon to see employers with Experience MODs over 1.00 finding it harder and harder to win bids, or simply unable to bid on them at all. Some RFPs will stipulate that if your experience mod is higher than XX, don’t even bother putting in a bid.
Let’s say a pallet manufacturer has a 1.5 experience mod and is bidding a contract against a competitor roughly the same size but with a much more attractive 0.9 mod. And let’s say the 1.5 MOD manufacturer has a premium of $400,000, and the 0.9 contractor has a premium of $260,000. The 1.5 manufacturer has to make the money for that extra premium somewhere, so he’s either going to have to bid higher than his competitor (with a greater chance of losing), or he can bid around the same, but by doing so has to reduce his profit margin while his competitor can have a larger profit margin while giving the same bid on the contract.
But don’t get complacent even if your company can boast a 1.0 experience mod. A 1.0 is considered “average,” so unless you view your company as a “C” grade business, you should strive to do better. This will not only make you more attractive when you enter the bidding arena, it can also reduce your costs. We worked with a company that had a very attractive .98 Experience MOD, but by putting programs in place they were able to reduce it to .83, which also knocked $15,000 off their insurance premiums.
Many things go into calculating your Experience MOD, but at the end of the workday it all comes down to the workers’ compensation triumvirate: job safety, recovery-at-work programs and injury management. Closing unresolved injuries takes due diligence, putting an effective recovery-at-work program in place takes initiative (and maybe a little imagination), but job safety is that straw that stirs the workers’ compensation drink, and that straw has a lot of moving parts.
Job safety is not only key; it is a culture that must be instilled from the top of the company down to the factory floor. If employees feel everyone is on board and their well-being is paramount, even above the bottom-line, they will be more conscious and alert next time they engage in a workplace procedure that could be potentially dangerous. And should they get injured, they will know that they aren’t going to sit at home wondering why nobody has checked in to see how they are doing and to reassure them that they are a valuable asset to the company and are needed back on the job, even in a limited capacity, as soon as they are physically able.
Having a strong recovery-at-work program is also a way to combat the struggle to hire new employees, making it imperative to keep their current ones on the job. The retiring baby boomer work force is and will be an issue that will affect every industry over the next few years as a wave of industry knowledge and expertise exits the jobsite. This removal of knowledge and skilled mentors should not be glazed over lightly.
This is a major reason keeping workers safe and protecting them against accidents and injuries should be a top priority. The median time away from work after suffering an on-the-job injury is 10 days and nearly one-third of all injuries can result in 31 days or more away from work. This amount of loss activity not only hinders a contractor’s productivity but can also put more pressure on other workers to pick up the extra slack from others. Extra work could also lead to more unsafe conditions and other possible injured workers. Trust me, you don’t want to be caught in this seemingly endless loop.
Along with the proper use of personal protection equipment (PPE) and better job training, technology is now playing a role in job safety with the use of drones and virtual reality (VR) to keep employees safe. Why risk the safety of a worker to check out a job site by driving over rough and often hazardous terrain when a low-flying drone can do the same job? And why not let a warehouse worker see via virtual reality all the potential dangers he will face in a busy Christmas rush before he must witness them in real-time? Other technologies on the horizon include software-based safety management systems and hardware-based systems that incorporate the use of sensors and wireless devices to connect both machines and personnel into a common system.
No matter the industry, your competition is always trying to gain an edge. So, if you aren’t investing time and money in these aspects, you can bet your competitors are. Because if you don’t stay on the cutting edge of the tools needed to control your experience mod, then you are going to find your company derailed when that next big bid comes down the track.
Editor’s Note: Stephen Sedlak, CIC, CWCA, is a partner at Pallet Risk Solutions, A Division of Schmale Insurance Agency and is a certified work comp advisor. He has focused on helping clients in the pallet industry with all aspects of their company risk and insurance needs for the past 11 years. He also is the author of an Amazon #1 best-selling book titled, The Work Comp Control Effect: 7 Steps to Increase Profits Through Your Work Comp Program. For more information, call (618) 233-0193 ext. 2, email ssedlak@palletrisksolutions.com or visit www.palletrisksolutions.com
