Workers Compensation rating catching up with today’s economy

by Sterling Risk Advisors

Sterling Risk Advisors’ Paul Baker writes in the Cobb Business Journal that recent ERM changes will affect what businesses are paying for workers compensation insurance.

Click here to view the article on the Cobb Business Journal site or view below for your convenience:

Earlier this year, changes occured that will significantly affect what  businesses pay for workers compensation insurance.  To encourage a more  responsible employer culture, the National Council on Compensation Insurance  created a financial incentive and punishment mechanism, the Experience  Modification Rating (commonly known as the ‘experience mod’ or ERM). That rating  is being adjusted during the next three years to catch up with cost changes in  the economy.

The intent of the ERM is to reward or punish employers whose  loss results either overperform or under perform against the average. The idea  is simple: even though all employers pay a similar rate due to grouped “class  codes” corresponding to hazard risk, individual employer cultures can have a  drastic affect on losses.

The “experience mod” acts much like an  insurance credit score, warning potential insurers of a bad loss risk, or  indicating the most desirable employers.  Similar to the effect of your credit  score on your interest rate, the experience mod can have a significant impact on  the final cost and viability of your insurance policy and thus on the overall  profitability of your business.

Recent Changes Catch Up on Last 12 Years  of Cost Changes

The current mod formula takes into account actuarial  ratios to determine what the National Council on Compensation Insurance would  consider to be “average.” Amazingly, these ratios have remained relatively  consistent for the past 12 years, meaning costs for items such as fuel,  materials, labor and medical expenses are out of date.

Consider for a  minute you run a shipping company and your budget for predicting cash flow is  based on the cost of goods and services 12 years ago. You would be budgeting for  a gallon of gas to cost $1.00!  Any fleet fuel expense estimates would be wildly  inaccurate given the current $3.40 or higher cost of gasoline.

1.     At  its most basic, your business could be paying much higher workers compensation  insurance premium rates

2.     A high mod rating could affect how you’re  perceived in your industry and might cause OHSA to examine your company for  safety violations

3.     You might find that you can’t even bid for  specific jobs if your rating is too high

Just as we spend time watching  our payment history, potential credit lines, and available credit to debt ratio  to maintain our credit score, we should also devote a similar amount of time to  understanding the mod formula. We should watch the number of claims, size of  claims, insurance company reserving practices and other factors, to keep our  insurance score the best it can be. Your question should be: “How low could my  mod score be and what can I do to make it lower?”

Cobb resident Paul  Baker is a Principal with Sterling Risk Advisors, a full-service insurance and  surety brokerage firm that has offices on Powers Ferry Road. ]]>

Read more:  Cobb Business Journal. A Publication of the Marietta Daily Journal


Paul BakerPaul Baker is a Principal with Sterling Risk Advisors and specializes in providing risk management consulting and insurance solutions to the real estate, construction and hospitality industries.

For more information, please call Paul Baker at: (678) 424-6521 or email at