Have you noticed that NCCI Experience Modifications (e-Mods) seem much more volatile than in the past? It is not your imagination. Once NCCI changed the formula and updates it annually for medical inflation, big swings of 10 to 30 points in a single year have become much more common. (If you’d like a refresher on how the e-Mod formula works, click here.)
The e-Mod considers three years of claims history, excluding data from the current term. Every year, the oldest policy drops off and is replaced by the newest qualifying policy. If a large claim or two drops in or out of the “three-year window” your E-mod can change drastically. This could be either good or bad. Either way, don’t you want to know as far in advance as possible?
Many businesses work within a budget of known expenses. For example, let’s say a construction company is bidding on a project that will take place when its Workers’ Comp premium will be based on a newly calculated e-Mod. If the future e-Mod is dramatically lower when benchmarked against the industry average, the construction company will feel comfortable submitting a more competitive bid. On the other hand, if the e-Mod is significantly higher than what it was during the bidding process, the additional premium cost will cut into the business’s profit margin for that project.
An additional element for contractors: A common requirement by owners and developers of big projects is to only allow construction companies with a 1.00 or lower e-Mod. Those with a higher e-Mod will be considered “poor safety performers” and may be prevented from bidding on projects. A contractor subject to this requirement should know as soon as possible if his or her business is in danger of having an e-Mod above 1.00.
At Strong Tower, we use emulation software that enables us to calculate an employer’s E-Mod with a high level of accuracy up to 12 months in advance, and project outcomes and impacts in real time. We can run “what if” scenarios of claims impact on our clients E-mod anytime it is needed and helpful.
The Workers Compensation specialists at Strong Tower are available to project your E-Mod for your upcoming renewal so that you are well-informed of what lies ahead and can plan accordingly, in addition to having the opportunity to make improvements.