Impact for larger organizations
At a larger organization, past claim costs are used to determine your experience modification factor (e-mod), a multiplier used to calculate your premium. If your claim costs are lower than average when compared with other organizations of similar type and size, then your e-mod will be lower than 1. That means it will reduce your workers’ compensation premium. On the other hand, if your claim costs are higher than average, your e-mod will be over 1. That will increase your premium.
The e-mod takes into account three years of loss history not including the most recent policy year, so that’s how long any given claim may affect your premium.
Impact for smaller organizations
If your premium is low enough (generally below $3,000 to $7,000 depending on the state), you may not be assigned an experience modification factor. (See our workers’ comp 101 page for more on e-mods). If you don’t have an e-mod, the workers’ comp underwriter will look at your loss history and use that information to decide whether your business is a risk he or she is comfortable writing. In some cases, an underwriter might be able to increase or decrease your premium based on loss history. This depends on state law and the insurance company’s underwriting standards.
Minimize the impact of claims by bringing employees back to work
One key thing you can do to minimize the impact of claims on your premium is bring employees back to work as soon as they are medically able. You could modify the employee’s job, offer reduced hours or offer a light-duty job until the employee is fully healed. For example, if you have a painter with an arm injury, he or she could answer phones or prepare estimates.
To save the most on future premiums, bring injured employees back to work before your state’s waiting period has kicked in if possible. (This is three to seven days depending on your state.) If you do this, the claim will be considered medical-only, so only 30 percent of the claim costs will be included in the e-mod calculation.
In addition to the cost savings, bringing employees back to work as soon as possible helps employees maintain their mental and emotional well-being, and improve their financial stability. It’s not only the smart thing to do, but also the right thing to do.