As I wrote in "Part 1," I read an article on this subject that I thought was very interesting. I thought, here, I would add my thoughts about the subject for the benefit of a company who does use experience mods as a qualifier before hiring another firm.
The author wrote of a general contractor who, upon realizing that this practice can unfairly discriminate against some subcontractors with very good safety records, changed his qualifying threshold from below 1.00 to 1.90.
EMRs In Construction: How High Should You Go?
My first thought was that, if not a typo, a 1.90 is a real overreaction to the problem. And I, more so than just about anybody, have both lots of experience with experience modification rate errors that inflate EMRs and great sympathy for companies "discriminated" against by this EMR in construction practice of excluding bids with experience mods over a 1.00 (or some other threshold).
To put this in perspective, though, take the law in Tennessee regarding experience mods of 1.20 or more. If you have TN exposures, your NCCI Experience mod worksheet has the following note: "The Tennessee Code.....requires every public or private employer.....to establish and administer a safety committee in accordance with rules adopted pursuant to.....if the employer has an experience modification rate equal to or greater than 1.2" So, at the 1.20 level the state of TN is concerned enough to start getting "involved" with your safety practices.
You don't have to understand the experience rating algorithm at an expert level. But, do understand that it is increasingly more difficult to move away from a 1.00 (either lower or higher) the farther away from 1.00 you get. To go from a 1.45 to a 1.90 requires much more claim activity that what it would take to go from a 1.00 to a 1.45. This is because there are mechanisms in place to slow down decreases in your mod the better your claims experience becomes and mechanisms to slow down increases in your mod the worse your claims experience gets.
You can't have an experience modification rate of zero and pay your insurance carrier nothing for your work comp insurance. Likewise, they don't want you to have a mod of 10, pay 10 times manual premium, and go out of business as a result. No need to get more technical than that. I'm sure you get the point.
However, if everything else about a proposal looks great and the experience mod is close to where you'd like to see it, it is probably a good to investigate and see if there are some mitigating circumstances. Or, something that a work comp audit could uncover. For example, are there claims with anticipated subrogation (accidents were the fault of some 3rd party, the insurance company anticipates recouping some or all of the claim expense, and the claim/s will eventually be removed from the experience mod)? There could also just be mistakes in the rating causing the trouble. It would probably take the assistance of a work comp audit firm like Cytron Group LLC, though, that has the expertise to find and correct these errors.
Finally, I just want to make sure you understand a couple things; 1) that experience rating is an imperfect system and 2) not taking a closer at certain candidates could be unfair to them and you if you miss out on a what could turn into a great business relationship with a, truly, safety conscious firm.
Stuart Cytron, MBA has been published in trade journals such Construction Forum St. Louis and St. Louis Business Journal among others. You can read more about Stuart and how he developed a passion for helping businesses reduce work comp expenses on his website.
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