When business owners look at their workers’ compensation premiums, they often assume the cost is set in stone. However, one factor can significantly affect the price you pay that is your Experience Modification Rate, or E-Mod. Many business owners don’t realize that their E-Mod can be incorrectly calculated, leading to inflated premiums. This blog will explain how common errors in your E-Mod calculation can cost you money and how auditing your E-Mod can help you avoid unnecessary costs.
1. Understanding the Experience Mod (E-Mod)
What is the E-Mod?
Your E-Mod is a numerical value that reflects the safety performance of your business. It compares your actual workers’ compensation claims to those expected for similar businesses in your industry.
How the E-Mod Affects Your Premiums
The E-Mod directly impacts your workers’ compensation premiums. A score above 1.0 means you’re paying more than the average business in your industry, while a score below 1.0 means you’re paying less.
Factors That Determine Your E-Mod
Several factors go into calculating your E-Mod, including payroll class codes, the number and severity of claims, and claims reserves. If these elements are incorrect, your E-Mod will be inaccurate, which could lead to overpaying on insurance.
2. Common Errors in E-Mod Calculations
Misclassifying Employees
One of the most expensive mistakes that can happen is the misclassification of employees. Classifying workers into the wrong payroll class code can raise your E-Mod significantly.
Incorrect Claims Reporting
Closed claims that are still showing as open can be a major issue. Once a claim is closed, it should not affect your E-Mod anymore.
Outdated Reserves
Claims reserves are estimates of the future costs of claims. If your insurance provider reduces these reserves, but the changes aren’t reflected in your E-Mod calculation, your premiums could be unnecessarily high.
3. How to Audit Your E-Mod
Step 1: Request Your Mod Worksheet
To begin auditing your E-Mod, you first need to request a copy of your E-Mod worksheet. In Florida, this can be obtained from the National Council on Compensation Insurance (NCCI).
Step 2: Verify Payroll and Class Codes
Once you have your worksheet, verify that the payroll and class codes match your actual records. Misclassifying employees is one of the most costly errors.
Step 3: Review Claims and Reserves
Look closely at each claim on your worksheet. Are any claims incorrectly listed as open? Have reserves been reduced without being updated in your E-Mod?
4. Why Auditing Your E-Mod Matters
Catch Mistakes Early
The biggest reason to audit your E-Mod is to catch mistakes early. If errors are found and corrected before your E-Mod is officially published for the year, you can avoid paying inflated premiums.
Save on Insurance Costs
Even small errors in your E-Mod can add up to thousands of dollars in overpaid premiums. By auditing your E-Mod, you ensure that you’re paying a fair price for your workers’ compensation coverage.
Plan for Premium Changes
By requesting a preliminary E-Mod estimate, you can see any potential changes to your premiums ahead of time. This gives you the opportunity to address issues early and plan your budget accordingly.
5. Common Mistakes That Can Bump Up Your E-Mod
Payroll Errors
Incorrect payroll totals can cause your E-Mod to be higher than it should be. If the numbers on your worksheet don’t match your actual records, your premiums could increase unnecessarily.
Misclassification of Employees
Misclassifying employees into incorrect payroll classes can be one of the most costly mistakes. Workers in higher-risk categories can cause your E-Mod to increase.
Not Updating Claims Information
If closed claims or reduced reserves are not reflected on your E-Mod worksheet, your premiums could be based on outdated information.
6. Steps to Correct E-Mod Errors
Work with Your Insurance Broker
If you notice errors on your E-Mod, work with your insurance broker to get them corrected. Brokers can assist in ensuring that your E-Mod is accurate and help you navigate the correction process.
Consult an Expert
If you lack the time or expertise to audit your E-Mod yourself, consider bringing in a specialist. An expert can review your E-Mod for errors, ensuring that your insurance premiums are based on accurate data.
Annual Review
Make it a habit to review your E-Mod annually. Doing so before the official renewal period allows you to identify any issues and correct them before they impact your premiums.
7. The Long-Term Benefits of E-Mod Auditing
Improved Cash Flow
By ensuring that your E-Mod is accurate, you avoid overpaying on insurance premiums. This can improve your business’s cash flow, allowing you to allocate resources more effectively.
Better Insurance Negotiations
A lower E-Mod can help you negotiate better insurance rates in the future. Insurance providers view businesses with lower E-Mods as less risky, which can lead to more favorable terms.
Sustained Cost Savings
Regular audits and careful attention to your E-Mod can lead to sustained cost savings over the long term. By consistently ensuring that your E-Mod is accurate, you prevent inflated premiums year after year.
Conclusion
Your E-Mod is not set in stone, it’s a calculation that can be affected by errors. By auditing your E-Mod, reviewing payroll and claims data, and working with experts, you can ensure that your workers’ compensation premiums are fair and accurate. Don’t let mistakes on your E-Mod cost you money. Audit it regularly and make corrections before the official announcement. With proper oversight, your business can save thousands in insurance premiums.
