Leveraging Your Experience Modification Rating to Your Advantage

Author, Matt Gorham, Account executive, Rancho Mesa Insurance Services, Inc.

Your Experience Modification Rating (e.g., EMR, X-Mod, or Mod) can have a significant impact on controlling costs within your insurance program. While most business owners recognize that a lower EMR typically leads to lower insurance costs, few owners understand the mechanics for determining an EMR and how they can be used to proactively manage resources to their company’s benefit.

An EMR is determined by evaluating a company’s recent history of payrolls and job related injuries, relative to its own industry, to benchmark them to their peer group.

If a company’s incurred losses (both paid and reserved) exceed the average within its industry, it will result in a debit mod (i.e., EMRs above 100) which leads to higher premiums. If the incurred losses are less than the industry average, the company will earn a credit mod (i.e., EMRs under 100) resulting in lower premiums.

As your EMR changes from year to year, it will directly increase or decrease your company’s workers’ compensation premiums, thus impacting overhead costs. Higher EMRs will increase overhead costs and can lead to increased bid costs, reduced profit margins, and in some cases restrict you in the pre-qualification process.

In the construction world, passing higher costs on to your customers in a competitive bidding process can prevent you from securing contracts. Choosing instead to absorb those additional costs, however, can jeopardize your company’s growth, financial stability, or possibly stop you from having the funds necessary to complete the job.

But managing your EMR is more than simply having the good fortune to avoid expensive claims. It is important to recognize that not all claims impact your EMR the same. Severity and frequency of claims both play an important role in your EMR, as does your primary threshold.

Using these key data points, we are able to create a proprietary KPI dashboard for clients providing valuable insights to the mechanics of their EMR. Business owners are able to see their:

• Primary Threshold and Maximum EMR Impact

• Claim Dollars Equal to 1 Point of EMR

• Maximum Controllable Points within the EMR

• Individual Frequency Trends and Benchmarking to Industry

• Individual Severity Trends and Benchmarking to Industry

• Lowest Possible EMR

• Projected EMR

Our KPI dashboard has become a must have tool for business owners, providing a better understanding of how to manage their EMR, allowing them to more reliably forecast overhead costs, and proactively address safety concerns. Coupled with Rancho Mesa’s in-house workers’ compensation claims advocate, business owners can more efficiently deploy resources and return-to-work programs to mitigate claim costs.

To request your own KPI dashboard and start putting it to use within your business, contact me at (619) 486-6554 or mgorham@ranchomesa.com.

The Field Guide to Navigating Your Insurance in 2022

Author, Dave Garcia, President, Rancho Mesa Insurance Services, Inc.

As a business owner preparing for 2022, what areas of insurable risk should cause you the biggest concerns?

During the 2021 year, we experienced a hardening insurance market. All lines of insurance were negatively impacted as a result of the catastrophic events we experienced such as wildfires, flooding, hurricanes, and the emergence of COVID-19. Large national and worldwide crises like these caused underwriting losses in the billions of dollars to both front line insurers and reinsurers. 

COVID-19’s impacts included:

• The loss of income/revenues

• Labor shortages

• Health concerns

• Relocation of labor forces

As the year comes to a close, we now have some answers but even more questions about what challenges 2022 will bring. Below are a few remaining questions that create uncertainty.

• Will Property, Auto, General Liability, Excess, Cyber, and EPL insurance continue to see pressure? The short answer is yes.

• What can I do today as a business owner to prepare and better mitigate these increases?

  • Start your renewal process a minimum of 120 days away from your expiration date. Learn more about the pre-renewal process in our article, “3 Reasons Your Pre-Renewal Meeting is Key to your Success.”

  • Be willing to meet and discuss your particular situation, needs and goals.

  • Choose a broker that specializes in your industry and can negotiate with the marketplace from a position of expertise.

  • Evaluate the services that you receive from your broker’s agency to assure they align with your specific risk management needs. Are they proactive or reactive?

Where is the Workers’ Compensation Industry Going in 2022 and Beyond?

What is expected of Workers’ Compensation in 2022? The short answer is that this market will remain soft.

The Workers’ Compensation Insurance Rating Bureau (WCIRB) has asked for a modest decrease in overall rates and most carriers’ filings have reflected that recommendation. However, these are averages and many industries will find these decreases harder to come by.

What is expected of Workers’ Compensation in 2023? There are several leading indicators that present early signs of a hardening market.  Here are a few:

• Wage inflation for most businesses. This will lead to higher temporary disability payments to injured workers thus increases in overall claim amounts.

• Wage inflations within insurance carrier’s personnel. This will cause a rise in their overhead costs and then a subsequent rise in their combined ratios which will impact their bottom line.

• The likely inclusion (September 2022 and beyond) of COVID claims in the Experience Modifier Rating formula (X-Mod). While this is not yet official, approval appears likely.

Preparing for the hard workers’ compensation market starts today with our checklist.

We will explore those at length in a series of articles beginning in January 2022. Subscribe to our newsletter to receive those articles. For now, here are a few tips:

• Utilizes a Workers’ Compensation Gap Analysis and Opportunity Assessment (through the Risk Management Center).

• Benchmark your performance to industry standards to look for areas of improvement. Learn more about Rancho Mesa’s KPI.

• Choose your workers’ compensation carrier wisely. Learn more about selecting a carrier in the article, “How to Choose a Workers’ Compensation Carrier Partner.”

• Have you ever considered performance-based programs? If not, maybe it’s time to bet on yourself. Watch the “Deductible Workers’ Compensation: Understanding performance-based insurance programs” webinar.

With workers’ compensation premiums representing a significant line item on many profit and loss statements, staying up to date on the rapidly changing environment should be a priority for all businesses. And, preparing for the expected rate increases is more important than ever with inflationary costs already choking profitability for so many operations. Our series of articles starting in January will help in this education process and allow you to better understand steps you can take now to weather this building storm.

Incorporating a clear strategy as it relates to your insurance portfolio is perhaps more critical than ever leading into 2022. With pricing increases across all lines of coverage becoming more and more common, managing this line item on your financials should be a proactive process with your broker. Start that dialogue now and develop the right plan to design and coordinate the most comprehensive and competitive program possible.

Top Five Workers’ Compensation Claims That Impact a MEP’s Bottom Line

Author, Amber Webb, Account Executive, Rancho Mesa Insurance Services, Inc.

If you are a Mechanical, Electrical & Plumbing (MEP) contractor who wants to impact both your productivity and profitably, then the following is crucial for your success. Our MEP Group at Rancho Mesa understands the importance of identifying the top five workers’ compensation claims that impact your industry while providing pertinent resources to help mitigate that risk. By working with leading workers’ compensation carriers and the Occupational Safety and Health Administration (OSHA), we identified the top 5 workers’ compensation claims affecting the MEP industry:  

1. Cut/Puncture/Scrape/Lacerations

2. Slip/Falls from both same level and ladders/scaffolding

3. Strains from lifting/handling/pushing/pulling

4. Struck by object/Foreign Body in Eye

5. Motor Vehicle Accident (injured employee)

With employee safety at the forefront of your operations, understanding where the claims are likely to come from and then having the support and tools in place to address those concerns is vital to your long term success. When injuries occur on the job, it impacts not only the life of the injured worker and their family but will directly impact the productivity and profitability of the project.

For our clients to proactively mitigate these exposures, we provide them with access to specific trainings related to these top MEP claims and OSHA citations from our Risk Management Center Library. Our Client Services team then works closely with our clients to customize their trainings while meeting their specific risk management needs. 

If you are not already a Rancho Mesa client, and would like a free trial of our Risk Management Center, please complete the form or contact Amber Webb at (619) 486-6562 or awebb@ranchomesa.com.

Pure Premium and How It Impacts Your Company

Author, Casey Craig, Account Executive, Rancho Mesa Insurance Services, Inc.

The Workers’ Compensation Insurance Rating Bureau (WCIRB) is an agency that compiles essential data annually which determines how your Experience MOD is impacted. These factors establish the baseline average MOD of 1.00 for California companies that produce enough payroll and premium to qualify within the guidelines. These factors can change year to year and represent a key rate trend indicator for all policyholders.

There are different rates generated for different classifications based on exposure and projected losses. The premium company’s pay for workers' compensation begins with multiplying the insurer's rate for the assigned classification(s) by the payroll developed in each classification. Workers' compensation rates are applied per $100 of payroll.

Pulling directly from the WCIRB website, “The WCIRB submits advisory pure premium rates to the California Department of Insurance (CDI) for approval. Insurer rates are usually derived from the advisory pure premium rates developed by the WCIRB and approved by the Insurance Commissioner. Advisory pure premium rates, expressed as a rate per $100 of payroll, are based upon loss and payroll data submitted to the WCIRB by all insurance companies. These rates reflect the amount of losses an insurer can expect to pay in benefits due to workplace injuries as well as the cost for adjusting and settling workers' compensation claims. Pure premium rates do not account for administrative and other overhead costs that an insurer will incur and, consequently, an insurer's rates are typically higher than the pure premium rates.” (WCIRB).

Of note, new pure premium rates were just released in September. Each carrier’s individual experience with all respective class codes also has an impact on these rates. Workers’ compensation has been in a soft market for the past several years with the expectation that rates will gradually start increasing. Following the change in pure premium rates is a great indication of where the marketplace is heading an effective way to better understand future costs that your company may be expecting.

With this in mind, engaging a broker that specializes in your industry and prepares you accordingly for the renewal process is a critical step in controlling workers compensation costs. Part of this process begins with understanding pure premium rates and how they ultimately will impact your MOD, carrier base rates, and your renewal pricing.

To discuss the current market or how your XMOD is affecting your workers’ compensation premium, contact me at (619) 438-6900 or ccraig@ranchomesa.com.

Changes on Horizon Likely to Affect Workers’ Compensation

Author, Sam Clayton, Vice President, Construction Group, Rancho Mesa Insurance Services, Inc.

Businesses in California have become accustomed to many changes in legislation and the filings from the Workers’ Compensation Insurance Rating Bureau (WCIRB). 

Changes by the WICRB typically take place at the first of every year and can impact workers’ compensation Pure Premium Rates, Expected Loss Rates (ELR) and Wage Thresholds. However, the WCIRB has amended its filing schedule in 2021 to take effect September 1st.

Below are key changes that businesses should be aware of that can alter Experience Modification Rates (ExMod) and workers’ compensation renewal pricing.

Assembly Bill 1465

The proposed Assembly Bill 1465 (AB 1465) could have significant impact on workers’ compensation rates in the years to come.  If passed, AB 1465 will establish the California Medical Provider Network (CAMPN), a broad and largely unregulated network run entirely by the state that would apply to the workers’ compensation system.  All licensed physicians in good standing who elect to treat injured workers will be included in the network.  Injured workers can choose any provider within the network and can transfer among providers multiple times without any limitation.

If this bill passes and a CAMPN is created, employers can anticipate:

• Doctor shopping by injured workers and attorneys;

• Increase in temporary disability and time to return to work;

• Increase in permanent disability ratings;

• Overall increase in medical costs per claim;

• Poorer quality medical reports due to fewer controls and less oversight.

Workers’ Compensation Rates

The WCIRB recently proposed a 2.7% workers’ compensation rate increase, effective 9/1/2021. This would be the first rate increase since 2015.  Updated fee schedules for med-legal review reports and physician office visits are what is driving this potential increase.

Expected Loss Rates

A characteristic of a Best Practice business is their focus on managing their ExMod. In simple terms, if a business’s ELR increases, it will have a positive effect on their ExMod. Conversely, if their industry’s ELR decreases, it will have a negative effect. While understanding what an ELR is and how it can specifically impact your ExMod is critical, this should be something your insurance advisor is explaining to you and projecting the impact it will have on your ExMod and ultimately your insurance premium.

To put this information at our clients’ finger tips, we have created a Key Performance Indicator (KPI) dashboard to not only show the impact of any changes in the ELR but also provide other key indicators like industry benchmarking, claim trending, and many other critical factors.  Request your customized KPI dashboard.

To stay up to date with these topics and related insurance news, subscribe to our weekly safety and risk management newsletter and podcast. Or, contact me directly at (619) 937-0167 or sclayton@ranchomesa.com to discuss how your company may be affected.

Contractors Brace for Impact of 2020 Expected Loss Rates

Author, Kevin Howard, CRIS, Account Executive, Rancho Mesa Insurance Services, Inc.

California contractors focused on their experience modification are paying close attention to the soon to be published 2020 Expected Loss Rates (ELRs).

ELRs determine the expected claim cost per $100 in pay roll for each class code during an Experience Modification (Ex-Mod) period. These rates are updated annually. The 2020 rates were recently approved on September 5, 2019. Changes in each specific class code’s ELR can positively or negatively impact a contractor’s Ex-Mod calculation.

In a nutshell, if an expected loss rate drops from one year to another with no material changes to payroll or claims, Ex-Mod’s will increase. Additionally, if an expected loss rate increases, Ex-Mod’s will decrease using the same example.

Below is a breakdown of the 2020 ELRs per class code with notable double digit increases highlighted:

Class Code	2020 ELR	Increase/Decrease %
3724 Solar/ Millwright	1.74	-4%
5187 Plumbing > $28	1.18	-8%
5183 Plumbing < $28	2.6	-5%
5542 Sheet Metal > $27	1.40	-4%
5538 Sheet Metal < $27	2.30	-12%
6258 Foundation Prep	2.65	-3%
0042 Landscape Gardening	2.59	-15%
0106 Tree Pruning	3.91	-21%
5140 Electrical Wiring > $23	.81	-6%
5190 Electrical Wiring < $23	1.89	+2%
5470 Glaziers > $33	1.63	+7%
5467 Glaziers < $33	4.30	-2%
5028 Masonry > $28	2.17	-9%
5027 Masonry < $28	4.73	-18%
5482 Painting/ Waterproofing > $28	1.42	-15%
5474 Painting/ Waterproofing < $28	3.68	-7%
5186 Automatic Sprinkler Install > $29	1.11	+5%
5185 Automatic Sprinkler Install < $29	2.45	-18%
5205 Concrete/Cement work > $28	1.95	-5%
5201 Concrete/Cement work < $28	3.95	-4%
5432 Carpentry > $35	2.01	-7%
5403 Carpentry < $35	5.27	-9%
5447 Wallboard Application > $36	1.34	-12%
5446 Wallboard Application < $36	2.76	-21%
5485 Plastering or Stucco >$32	2.66	-6%
5484 Plastering or Stucco < $32	4.78	-27%
5443 Lathing	2.37	-18%
5553 Roofing > $27	3.90	-14%
5552 Roofing < $27	9.85	-4%
6220 Excavation/Grading > $34	1.24	-24%
6218 Excavation/Grading < $34	2.34	-5%

The data above shows that a majority of class codes will be seeing a decrease in ELRs which will cause higher Ex-Mods in many cases. That reality creates a heightened need for loss control, claim management and post claim strategies. If you are seeking a partner with the tools to address these needs, please reach out to Rancho Mesa Insurance and our team of professionals at (619) 438-6874.

2019 Expected Loss Rates Published in California’s Updated Regulatory Filing – X-MOD Impact Inevitable for 0042 Class Code

Author, Drew Garcia, Vice President, Landscape Group, Rancho Mesa Insurance Services, Inc.

The 2019 Expected Loss Rate (ELR) for Landscaping class code 0042 was recently published at a 15% decrease or $2.97.

The ELR is the factor used to anticipate a class code’s claim cost per $100 for the experience rating period. It is not to be confused with the Pure Premium Rate (PPR). The ELR differs from the PPR in that the ELR simply measures the basic claim cost for a class code without including loss adjustment expense, excess loss load (capped at $175,000 for X-MOD purposes), and loss development. The PPR includes all of the mentioned above factors and is the rate for which a carrier can expect to pay for all of the cost associated with claims in a specific industry. The PPR does not account for the carrier’s overhead, profit, tax, and commissions.

Under most circumstances, when you hear the word decrease as associated with insurance its a good thing, but in the case of the ELR, a decrease will have a negative impact on your Experience MOD (X-MOD). In simple terms, if your losses stay the same and the ELR for your industry is down 15%, your X-MOD is going to go up.

At 15%, the landscape class code accounts for one of the largest swings in the 2019 regulatory filing for all industries. This only reinforces the importance of mitigating claim frequency, superior carrier claims handling, internal claims advocacy, claim cost consolidation efforts, and a proven system to keep all of these aspects running constantly. Fortunately, Rancho Mesa has a system in place today and it is a proven success.

Don’t be caught off guard in 2019; have a plan and always anticipate for the future. Let Rancho Mesa help manage your landscape insurance needs. For more information, call (619) 937-0164.