What Is Your Multiplier?
GARY SHAPIRO, Senior Vice President, Program Brokerage Corporation
Do You Generate a Multiplier Above or Below 1.0?
This is a question we do not often ask ourselves or think about, but the experience modification multiplier is a critical component of calculating your Worker's Compensation premium. It ultimately determines how much you will pay.
According to the Workers Compensation Board of New York:
"Workers’ compensation (WC) is insurance that provides cash benefits and/or medical care for workers who are injured or become unable to work as a direct result of their job. Employers pay for this insurance and shall not require their employees to contribute to the cost of compensation."
All 50 states have workers’ compensation systems that provide benefits for work-related injuries. Each state is different, but generally there will not be an experience mod within the first three years of purchasing WC, or if less than a specified minimum threshold is generated.
What is the Experience Mod or Multiplier?
Each employer is given a classification based on their business operation. This reflects all similar businesses which are grouped together according to their classification. The losses for the group are averaged together, and from this information, a manual rating factor is calculated. This factor is used to determine the WC premium.
While the classification rate is determined by the group’s loss experience, the modifier allows business owners to tailor their costs for WC based upon their specific risk characteristics and loss experience. The experience mod recognizes each employer’s ability to distinguish itself from other qualifying employers within the unique classification code by implementing safety and loss prevention programs.
The Impact of the Experience Mod Multiplier
An employer can’t elect to choose whether or not to use the experience mod. The WC insurance carrier is required to apply the mod that is earned. The experience mod will be calculated annually using a combination of claims data and payroll from the last three years. Multiple losses will have a greater impact than a single large loss. A business’ claims information will be compared to qualifying employers within the classification code and a multiplier will be calculated. A multiplier of 1.0 means that the rating will be based on the group’s overall average experience. A multiplier under 1.0 generates a credit, whereas a multiplier over 1.0 assumes that the premium will be above the group’s average for WC insurance.
Manage Your Bottom Line
While the experience modification multiplier gives each employer the incentive to manage their own bottom line, tried and true programs will allow you to effect positive change.
• Rely on your safety program, remind employees of documented protocol, and check safety gear, tools and other items necessary for the job. Be sure to replace as needed.
• Revisit your return-to-work program. Allowing your employees to get back to work, even if it’s in a reduced capacity, helps build morale and affords workers the opportunity to be viable contributors to the company’s results.
• The Quality Pro Certification provides great suggestions for effecting positive change in your experience modification and ultimately reducing overall cost.
• Focus on the incident that causes an accident, encourage employees to report injuries promptly and investigate and train accordingly.
The more you can do to effect this positive change and manage an injury free workplace, the more likely you are to effectively manage your WC costs.
Obtaining the proper insurance coverage will help ensure that the business’ bottom line is protected. Working with a specialty insurance broker who understands coverage issues and negotiates coverage that is customized towards your business’ risks is key in preventing disruption to your business.