“We just can’t change your mod,” Ron Cooper says, describing his conversations with employers who contact the Indiana Compensation Rating Bureau (ICRB) in frustration over their most recent experience mod value. While some of those calls may be about the impact of an unexpected mod increase on an employers’ workers’ comp premium, the most troubling ones are from employers in construction-related industries who can effectively no longer do business because their mod is over a certain value required to bid on a contracting project.
This isn’t a problem specific to Indiana. Nationwide, the construction industry has been using the experience mod rating (also known as the mod, e-mod, ex-mod, or EMR) as a qualifier for about 20 years, ICRB President Cooper estimates, because it reflects “third party, objective, and reliable, audited data.” The EMR is commonly used by construction project managers and safety organizations to prequalify contractors for worksite eligibility. Oftentimes the contractor’s mod must be below 1.00, 0.90, or even lower.
But the EMR is designed as a pricing modifier to determine insurance premium, not as a tool to qualify contractors for projects, Cooper says in a white paper published by the ICRB. The paper, now at the center of groundbreaking industry discussions in Indiana, stands to lead the way for national reform in the use of the experience modifier as a qualifier for awarding construction projects.
“We’ve always tried to be proactive,” says Cooper, who began his career at NCCI and has been with the Indiana bureau since 1995. In the past year he’s proven that with this issue, meeting with construction industry representatives in Indiana to talk about the flaws of using the EMR as a qualifying metric. Some of those flaws, as discussed in the paper, include:
- The EMR includes reserves on open claims which change from year to year.
- The EMR experience period is one to four years old, thus, it may not reflect current conditions of a contractor in terms of safety.
- Using the EMR as a qualifying metric encourages employers to not report injuries and pay claims out of their own pockets, a practice which is not cost effective and may be illegal.
- Contractors with no losses can realize an increase in their EMRs simply because of statewide drop in claim frequency (that must be recognized in annual updates of rates and rating values)
If the paper’s executive summary doesn’t raise your eyebrows, the case studies will. The paper shows how one employer’s mod increased from 0.89 to 0.94 over the course of 5 consecutive years despite the business having no losses in any of those experience periods. Other anecdotal data includes quotes like these from Indiana businesses:
- “…because of one claim, I stand to lose a substantial amount of revenue. In this economy this could be the end of my small business,” says one sub-contractor whose mod changed from 0.83 to 1.07 as the result of one claim.
- “…older workers take longer to heal, and the claims costs are higher…my EMR could be higher than my competitor and disqualify me from bidding simply due to the age of my workforce…that reason seems discriminatory to me.”
- “The insurance company is still going after the third party that caused [a work-related auto accident]. But in the meantime, the cost of the claim shows up on my experience. That puts my EMR over 1.00 and now I don’t qualify to bid on jobs.”
Cooper’s meetings with industry representatives have been at events like the Beyond Safety Conference and Expo, where the audience included contractors and project owners representing large corporations. He has also been in talks with groups such as the Metro Indianapolis Coalition for Construction Safety (MICCS) and the Indiana Construction Association. These organizations have been “very receptive” to a call for change, Cooper says.
“If a company isn’t certified with MICCS, it’s tougher to get a job in the Indianapolis area,” Cooper says. MICCS prequalifies contractors at various levels, including “Qualfied,” which among other criteria requires a mod of 1.00 or less, and “Certified,” which requires a mod of 0.90 or less. In light of the data Cooper has shared, the organization has increased their sensitivity to and understanding of appeals related to the mod and is looking at revising criteria, perhaps by also taking into account the employer size. (Editor’s note: My own related suggestion is that, if these organizations are going to continue to consider a company’s mod, they should also know its lowest possible mod, or loss-free rating, since it may be mathematically impossible for smaller companies to achieve the same minimum mod that large companies can.)
A quick search of the Internet reveals construction companies touting their “impressive” EMRs from 0.90 down to 0.53, depending on the company. The truth is, the company with a 0.90 may already be at its best possible EMR, and next year that best possible value will probably change. As the paper concludes, “’Safe’ contractors may be unfairly disqualified from bidding on construction jobs.”
“There’s a definite opportunity to revise how the construction industry uses the EMR,” says Cooper. The paper suggests OSHA reports or NIOSH recordable and lost time incident rates might provide some alternatives.
While 2013 changes to the split point and maximum mod formula will generally lead to a decrease in loss-free ratings, those same changes – for certain risk profiles – may lead to increases in the mod that are beyond the employer’s control. Comments here on the WorkCompEdge blog have suggested that some state bureaus are reticent to approve the 2013 changes specifically because of concerns from the construction industry.
Connecticut is one example. “I have been monitoring the split point issue very closely,” says James D’Errico, Manager of Audit Administration with Peoples United Insurance Agency in Hartford, Connecticut. “To date, Connecticut has not committed to the revision. The Connecticut Insurance Department is concerned with the potential impact on contractors with debit mods, coupled with our poor economy, and the fact that in some cases, contractors cannot bid on construction projects with a mod over 1.00.”
My research shows this isn’t the first time that concerns about the construction industry’s use of the EMR have surfaced, but the excellent arguments in the ICRB white paper, coupled with the most significant refinements to experience rating in two decades, may create a perfect storm of opportunity for change.
What are your thoughts and experience about the use of the mod to qualify contractors?
– Kory Wells, WorkCompEdge Blog Editor
© 2012 Zywave, Inc. All rights reserved. For reprint permission, contact the blog editor.
Related reading
For more about the loss-free rating, read:
For more about the 2013 split point change, read: