Risk Alert: Changes to E-Mod Begin July 2015
Communications & Development
Change is on the way when it comes to measuring safety in the state of Texas and it’s vital for risk managers and contractors to understand the forthcoming adjustments to the E-mod or workers’ compensation experience modifier. Your company's E-mod, which has long been viewed as the standard in terms of safety, could change simply due to the new calculation formula being rolled out as the state begins utilizing the National Council on Compensation Insurance (NCCI) Experience Rating Plan on July 1, 2015.
The Basics: What’s An Experience Modifier (E-Mod)?
An experience modifier is an adjustment in premium to reflect an employer's loss experience. It allows insurance carriers to distinguish among employers in the same rating class or of a similar premium size. Traditionally, an E-mod greater than 1.0 has been viewed as substandard in terms of safety practice, compared to the average business in that classification. E-Mods are based on this formula: Actual Losses / Expected Losses = E-Mod.
Change #1: The E-Mod Formula
With the introduction of the NCCI Experience Rating Plan on July 1, the calculation of experience modifiers will undergo numerous adjustments and could pose a significant impact. Such changes to the formula can prompt increases in the experience modifiers for many companies, despite the fact there were no changes in loss experience. These E-mod increases could potentially eliminate strong performing companies from competition.
Change #2: E-Mod Negotiation Ends In 2018
Beginning in July 2018, companies will no longer be able to negotiate their experience modifiers downward in order to be eligible to work on a project. This change eliminates the loophole that has allowed companies to negotiate in order to stay in compliance with customer contracts that require a 1.0 E-mod. The inability to negotiate could potentially affect contracts and vendor relationships.
E-Mods Remain A Vital Indicator
With the upcoming changes to the E-mod calculations, an experience modifier may not be the best judge of a company’s safety practices. However, the e-mod remains an important part of the insurance industry as they provide insurance companies with a generalized assessment of where a company ranks within a classification code containing similar businesses. This assessment helps determine accurate workers’ compensation rates.
Focus On Safety
As the calculation for experience modifiers undergoes significant changes, business owners need to fully understand the potential impact and use the transition period to prepare. Now, more than ever, it’s important to evaluate current safety protocol and business practices rather than relying on a single number. Companies that shift their focus to safety, as a means for keeping modifiers low, will enjoy a smooth transition through the upcoming changes.
Important Dates to Remember
|July 1, 2015||Texas begins utilization of the National Council on Compensation Insurance (NCCI) Experience Rating Plan, which changes the E-Mod formula|
|July 1, 2018||Negotiation of experience modifiers will be prohibited in Texas|
Take Action to Prepare
To schedule a review of your E-Mod to ensure accuracy and prepare for the transition, contact us. We can also share how our clients have improved their safety programs and controlled the cost of claims through our aggressive claims management resources to protect their E-Mod and limit the impact of this change on their company.