Businesses today are seeing movement in their experience modification (e-mod) factors. In Texas, there have been changes over the last few years in how modifiers are calculated. Higher modifiers can cost contractors work and affect how underwriters view businesses as a risk.
Workers’ compensation insurance laws vary by state. In Texas, coverage is optional for private employers. However, according to the Texas Workforce Commission, purchasing workers’ compensation coverage results in limits on the amount and type of compensation that employees are entitled to receive after an injury. Without insurance, employers are vulnerable to expensive lawsuits should an injury occur, and the damages are essentially unlimited.
How Work Comp Insurance Rates Are Calculated
When determining rates, insurers look at employer classifications. These classifications are based on the type of work the business performs and the risks associated with the industry. There are also standard exceptions for common workers, such as clerical office employees and salespeople, whose risk would differ significantly from that of the other workers.
These classifications consider industry risk, but they do not reflect the risk associated with individual companies. For example, it makes sense that a logging company would pay a higher rate than a web design company since employees at a logging company are more likely to be injured on the job. However, one logging company may provide a safer work environment for workers than another. This is where the experience modification factor comes into play.
Experience ratings look at the employer’s losses for a set period. If the losses are higher than expected for the industry, the employer is penalized with a debit modifier that increases the premium. If the losses are lower than expected for the industry, the employer is rewarded with a credit modifier that lowers the premium.
The Bottom Line
By reducing the frequency and severity of workplace injuries, you can positively influence your experience modification factor, and drive down your work comp premiums over time. Of course, this all begins with a proactive safety and loss control program. If you’d like help with your risk management practices, contact Higginbotham for more information or download our Safety & Loss Control brochure.