Saving on your Work Comp Insurance
By: Tony Matera / twitter @WI_InsSolutions
In the last couple of weeks we have taken a look at the basics of Workers Compensation (Work Comp), the importance of timely claims reporting, how to dispute a claim and how to prepare for your year end audit. This has all been part of our series giving insight to the often misunderstood and complex coverage facing most business owners.
The largest misconception about work comp is that there is nothing you can do to control costs. That rates and class codes are set by the state bureau and that's that. The reality is each industry is rated by their peers' four year average loss ratio to payroll and then you are given an Experience Modification Factor (mod).
This factor directly effects how much you pay for workers comp. This is not controlled by the state but by how well you manage claims. If your losses are the same as industry average your factor is 1.0. This is AVERAGE not ideal. If your losses are higher than industry average your factor will be higher than 1.0. Meaning you are paying more for work comp than your competitors across town.
If you want to beat that average, and thus lower your work comp insurance costs, you've got to know your current mod, your perfect mod and the difference between them that we call your controllable mod factor.
Every mod value can be broken into two pieces: the minimum mod and the controllable mod. The minimum mod is that perfect score: the lowest possible mod if your business had no losses for the experience period (in Wisconsin it is your last 3 completed years). The controllable mod value is a direct result of the losses your company had during the experience period.
So what does this all mean in dollars and cents?
The minimum mod and controllable mod are important for two reasons. For large companies, these values highlight the savings that are possible by controlling losses. For example, a company with a mod of 0.93 may think they are doing quite well (.07 savings compared to industry average), however, if they have a controllable mod of 0.25, there is significant room for improvement. In this example, which had an estimated manual premium of $250,000, this translated to a $62,500 cost savings! (example courtesy of Zywave's WorkCompEdge)
For a small company, the minimum and controllable mod values are just as important in establishing goals and driving cost down. (Not all businesses qualify for a mod. In Wisconsin you must have a minimum premium of no less the $5,000 for three consecutive years)
Regardless of the size of your company, understanding the mod factor gives you a step up on your competition by realizing the real budgetary savings achievable by reducing that controllable mod to 0 through loss control and loss prevention activities.
Ask your insurance agent to discuss your minimum and controllable mod values and estimate the premium dollars you can save by attaining your lowest mod factor.
I hope this week's look at work comp has helped you see how work comp premiums aren't set by the state but can be controlled by you and your risk management team. As always if you want more information or have questions please feel free to contact me directly. Thanks for checking in.
Tony Matera is a licensed independent insurance advisor with Ansay and Associates out of Port Washington WI. And is the Servicing Agent for ONMILWAUKEE.COM For more information contact him at firstname.lastname@example.org or call directly at 262-376-3248 www.linkedin.com/in/TONYMATERA