Workers' compensation is widely regarded as a non-discretionary expense. For some, it’s an unfortunate cost of doing business that adversely impacts the bottom line. For others, however, it’s a means of differentiating yourself from industry peers. In this episode, we spoke with Crystal Jones, a senior underwriter with The American Equity Underwriters, to explore practical ways mid and front-line managers can help reduce workers' compensation costs as a means of gaining a competitive advantage where it historically may not have existed.
Joe White (00:00):
Experience Modification Rate. What is it? Why is it important? And how can you have an impact upon it?
Hello, and thank you for joining us today. My name is Joe White and I'm the host of Supervisor Skills, Secrets of Success. The SOS podcast series is produced for the ongoing development of frontline managers. With each episode, we take on topics of interest and interview subject matter experts for the benefit of our listeners. In today's episode, we're going to talk about Experience Modification Rates. It's an important calculation used in workers' compensation, and hopefully it'll be a subject you'll be able to benefit from. My guest today is Crystal Jones, a senior underwriter for the American Equity Underwriters. Crystal has been with AEU about 10 years and is a graduate of South Alabama University. Welcome Crystal and thank you for joining us today.
Crystal Jones (00:56):
Hi, nice to be here.
Joe White (00:58):
Good. Crystal, if you would, just take a few moments, tell us a little bit about who you are and what you do at AEU.
Crystal Jones (01:06):
My name is Crystal Jones. I work at American Equity Underwriter where I am a Senior State Act Underwiter, that means that while there's the Marine side, the USL&H, I work on the land-based side where I work with all 50 states and learn their jurisdictions, their regulations. So I'll work with the land. And then on my personal side, I'm a member of the Junior League, where I'll be the editor of the magazine this year and I like true crime on the side. Thank you for allowing me to be here today and I hope the session goes well.
Joe White (01:47):
Great. Thank you. You know, today's topic, in general, is around workers' compensation. And I know in my background, I've spent a lot of years in safety and the term Experience Modification Rate or E-mod, or as some call it an EMR, has periodically come up. I know I never, again, being in safety, I knew it was there, I knew it was important, but I really never understood what the term meant. And so I'm going to have to assume that some of our listeners are in that same camp. If you would take just a moment and just give us a brief overview so we can have a good, solid understanding of what an Experience Modification Rate is.
Crystal Jones (02:29):
Okay. Well, Experience Mods are designed to show each entity's individual loss potential. So let me break that down. NCCI or the state bureau takes an entity's payroll and the loss data of that employer. Then that information is analyzed over a period of time, which is usually about three years. Then that information is compared to groups of risks that are similar to a person's business. So risks that basically are around the same type of comparison to that person's type of risk. So, if they are shipbuilders, they'll compare them to other shipbuilders. Then, they calculate that experience rate that you have received. So basically when it comes down to it, your Experience Mod is based off of your payroll and your loss data.
Joe White (03:29):
Okay, And is it a thing about the variable, obviously payroll can vary, but in particular, the focus, the interest that we're going to be looking at today, it's really around that loss data. And that would come in the form of injuries and work-related illnesses that you might have. Is that correct?
Crystal Jones (03:47):
That is correct, yes.
Joe White (03:49):
Okay. So with that understanding, suddenly this is something that as a supervisor or manager, I have to understand, I can have influence or impact upon an Experience Modification Rate. So before we really dive into that a little bit deeper, one question I have, and again, I've never owned a company, but considering I'm a contractor or I'm in maritime or mining, I know there's a lot of different industries that we particularly serve, is workers' compensation, is it a discretionary expense? Or as an employer, is it something I'm required to have?
Crystal Jones (04:32):
That's a great question and the answer varies depending on the state, actually.
Joe White (04:37):
Crystal Jones (04:38):
So it's usually yes, as most states require employees to purchase coverage, but I would check with your Department of Labor to verify your state's requirements.
I would like to state though that if you have employees and you fall below that required amount for coverage in your state, that doesn't mean that if something happens while you're on the job, you're not liable for the employee's injury, this kind of incident can be detrimental to a small business. So it's encouraged to also purchase a work comp policy for all your employees.
Joe White (05:16):
Okay. All right, that helps. The next question that I have, and it's really related again to helping me understand and get a handle on workers' compensation. If I go to any of the big-box hardware stores today, and I decide that I want to buy 2x4s, or I want to buy a sheet of plywood, I'm going to probably pay within pennies across the board, wherever I go, I'm going to probably pay about the same amount of money for that piece of material. With worker's compensation, does everyone pay the same price for the same coverage? In other words, if I have 150 employees, does it cost me the same amount of money as my competitor that has the same exact amount of employees? Or are there variables?
Crystal Jones (06:07):
There are variables, so no. NCCI annually reviews the medical losses caused by claims in each state. So once again, we're looking at claims. So each state that reviews their claims each also has different rights. So, but I'm sorry, but Florida is unique. There's only one. It requires all carriers to charge the same manual rates for coverage, making it the only non-monopolistic state that requires set rates for insurance companies.
Joe White (06:50):
Okay, I was not aware of that. Okay. So Florida is the only one though.
Crystal Jones (06:54):
Yes, Florida is.
Joe White (06:55):
Okay, all right. So if companies do pay or they can pay different rates, that can have a huge impact on the cost of you doing business and what you ultimately have to charge your clients. So it becomes a very important measure.
Crystal Jones (07:12):
Yes, that's correct.
Joe White (07:13):
So that leads to the next question. If rates vary, what can a company do to drive down those rates for workers' compensation? I mean, what are some examples of things they can do?
Crystal Jones (07:26):
Well, it really comes down to claims and loss prevention. I would work with your insurance provider to see what benefits they provide to help assist in guiding and directing you to help prevent future accidents, have an expert Safety Director in place and surround yourself with employees that make safety a priority.
Joe White (07:49):
Okay, yeah. That's definitely good advice. I know, again, in the past roles that I've had, worker's compensation was an area where I had responsibility. And although the company that I worked for was self-employed, we still managed our workers' comp through a third-party company. And you know, there's just so much around workers' compensation that I never really knew or understood but there are a lot of variables. And for example, if you can get someone back to work or put them on light duty or restricted duty, in many cases, that can benefit or help you. And I know that's not always possible, but again, there's a lot of things that you can work with your insurer to put in place that would certainly help you.
Crystal Jones (08:37):
Yes, that is correct.
Joe White (08:38):
As a business owner, if I own a construction company or own a stevedoring operation, you know, what we've talked about so far is that the cost of doing business, what it's going to cost me to ensure my workforce, particularly through workers' compensation, you know, that obviously it can vary in many cases very significantly. So I understand it's very important to the owner, to those that are at the executive level. And I want to take the discussion down now to the supervisor or to the manager. As a supervisor manager, a foreman, what are some of the things that I can do? What are some of the things that I can do that would help improve the worker's compensation and ultimately my Experience Modification Rate?
Crystal Jones (09:27):
Okay, well, just continuing almost what we just talked about. You have loss prevention, modified duty programs, treating employees with respect and showing that you care about them. Which what I mean with that is if they have a claim that occurs, go with them to the hospital or to the medical center, check up with them, once they're at home, recovering to see how they're doing so that they know that you care about them and their recovery. And then reviewing near misses to engineer out potential claims.
And then finally, it's also important to discuss with your upper management to have- to make sure that they have a strong commitment to safety and that commitment is communicated to job supervisors. And other words, employees need to know safety is important to their supervisors, the management and the company overall in order for them to take pride in making safety a personal commitment.
Joe White (10:37):
Okay. And as I think about this systematically in the things that, for example, you'd mentioned earlier, loss control or loss prevention, you know, some of the things that would come to mind in addition to the points that you've raised here is obviously prevention. You want to prevent the incident from happening only from the onset, and that's very important, early reporting of injuries. And I know, and again, my past experience, one of the things that always would creep up is you would have an employee that would, would come in one morning and they'd say, "Hey, I've got this ache in my back," or "I've got a knee that's hurting." And you start asking questions and you find out they've been working with that soreness, that ailment, that pain for months. And again, you want to avoid that because that's something obviously that has a huge impact on the sort of treatment that may follow in the cost of that treatment.
Crystal Jones (11:33):
Exactly. You not only have a source of treatment that may cost more for that, but you also own a business side, may have fees and fines for reporting late with workers' compensation.
Joe White (11:45):
Crystal Jones (11:45):
So you're doubly hit and you want to make sure that you take care of that as early as possible.
Joe White (11:51):
Okay, that's great. So the only other thing that I can again, add to this would be, and we mentioned early was allowing employees to return under some sort of restriction or are modified in modified duties and then injury management. And you certainly said that going to the hospital with the individual, talking to the doctor about what's available so that they don't just write them out of work that they say. Oh, you do have modified duties. You can adjust the daily scope of work the employees being asked to perform. All of those things can help drive down the cost of that injury. And obviously taking care of the employees, got to be at the forefront of that and treating them with respect. And again, I think you nailed that.
Crystal Jones (12:36):
Joe White (12:38):
Another question I have is around experience mod, or E-mods, or Experience Modification Rates. When I was in my previous role, I had in many instances I would be part of a group that would be putting together scope of work for contractors. We would take in the bid packages that we would receive. And one of the first things we would do would be to sort those that had E-mods higher than one. And in the instance that I'm talking about, if you had an E-mod higher than one, you didn't work on our site, you didn't qualify to work on our site. So with that said, it's again, it's a very important number. So I'm going to ask you, what does that number mean? What is a one, for example, with, if you have an E-mod of one, what does that mean?
Crystal Jones (13:30):
The one is the median. So it's the middle number for the modification factor. All companies start with the one at the beginning before any credits or debits are applied. Many companies may not even have any E-mod factor in place for a number of reasons. And they would also be assigned to one at that time. So until they have enough data to prove, to generate an E-mod for debit or credit, they would be assigned to one.
Joe White (14:00):
Okay. And correct me if I'm wrong. If that median, that average number, which represents your average in your industry, does it vary by sector? For example, if I do steel erection or if I do civil work, or if I, you know, do highway construction, am I grouped within my SIC payroll? Or how does that work? I just want to make sure I fully understand that.
Crystal Jones (14:29):
Well, as I said before, whenever NCCI is reviewing your losses and your data, it is in comparison to industries that are like in order to get to review your rate. So it is compared to like industries, but, so it can result in a one, or the debits and credits can push it one way or the other. So it is compared to other like industries.
Joe White (15:01):
Okay. All right, that helps. But the big point they want to make out of this and especially to our listener, which is usually a supervisor or a manager, is that if you really want to try to position your company for success and to make it as competitive as possible within your industry, that E-mod is very important because if you have a number, if your E-mod is higher than one, you're going to find out that there are a lot of employers, particularly in high hazard government facilities. I know petrochem, a lot of utilities, if your E-mod is higher than one, you're not going to qualify to work in a lot of those plants or those industries. So it's important you recognize and understand that.
Crystal Jones (15:46):
Yes, I did want to mention though that unfortunately, a lot of times, we're not a lot of times, occasionally you may see a business that works with a company or in the insurance industry that isn't with non-affiliated data.
And sometimes it does occur that they may have a portion of their insurance with non-affiliated and a portion of their insurance with the affiliated and in a situation such as our industry, which is American Equity Underwriters, we have a mutual, which is the USL&H, and our state act is with "normal" [insurance] companies, such as PMA or with Great American.
And a situation may occur where the mutual insurance is not reported to the Department of Labor. And so on the E-mod, you only see declare [inaudible 00:16:52]. And after a couple of years of reporting, you may see the prior companies reporting on the E-mod, and then you start to see the state acts only, and the E-mod went up.
And unfortunately their E-mod spiked and the companies bidding with that E-mod didn't want to take their experience whenever they actually had claim across the board with that.
And so I, you know, want to encourage whenever people are looking at bids, so not just take that E-mod as considerations also, potentially whenever, they have a situation like that, where it's two policies that they have on board to possibly may look at a letter from the insurance carrier stating, "They actually have a clean record." You know, their E-mod is actually you know this because we have a way of running it to possibly show something different, right.
So maybe take a letter from the insurance carrier as well and suggest that E-mod for their bids, because it wasn't fair to them to see that E-mod would just declare [inaudible 00:18:08], whenever there was much more coverage in place under the USL&H policy. And that doesn't just happen with USL&H, there are other companies out there that have not affiliated data with mutual companies where that happens. So I want to just say that that can happen in the industry. So just make sure that, you know, I wanted to put that out there.
Joe White (18:34):
That's a great point. And I really, again, I appreciate you saying that because most often we're speaking or at least trying to help and benefit those that would be on the user side and not necessarily the vendor or the consumer side. So that's a great point. And I really appreciate you bringing that up.
To take this one step further, and we've got a little bit more time here, but to take this one step further, when I think about E-mods and again, if I'm an owner and it is obviously a very important number, how long does it usually take to see a change in that number? If I, for example, if this year I've had several really serious injuries and I know that it's going to go up, how long does it take for that, that E-mod to really start to move and to adjust? Is it one year, two years? What's the number?
Crystal Jones (19:29):
That's another great question. First, let's say then in order to generate an E-mod, you must have three years of data with premium over $5,000.
Crystal Jones (19:38):
One year over $10,000 in premium or a claim on an account. So any of those would trigger the beginning of an E-mod, but if your premium is below $5,000, you may never see an E-mod on your account.
Joe White (19:57):
Crystal Jones (19:58):
Yeah, so I just want to say that if you don't have an E-mod now it's probably because of one of those situations.
Joe White (20:07):
If I, let's say mine's a little higher than one, and I know I've had a couple within the last year, I've had a couple of really bad injuries, very expensive in terms of payment processing and getting the employee back to health. Will that go away in a year?
Crystal Jones (20:27):
Yes. Yeah, okay. So let's say that you, like you said, you have any E-mod in place, you've made improvements over the last year and your year is 2021, 2022 with no claims.
And you're hoping to see a lower rate in your E-mod. That information won't show up until the 2023, 2024 E-mod.
Joe White (20:52):
Crystal Jones (20:53):
So exactly. So you have to start making changes now in order to see improvements in the future.
Joe White (21:02):
I'm glad you mentioned that because when we think about frustrations that owners have, you know, sometimes we'll talk about safety in terms of climate versus culture. I can go into a room and turn a light switch on or off, and I can immediately affect the climate. But changing the culture is far, it takes more time. It's like changing the temperature in the room. And when companies start this journey and they really become focused in there, they realized that the value importance of an Experience Modification Rate, in many instances, you have to know and understand that it's a journey and it's a cultural thing. You can't go out in one month and say, "Oh, we're going to fix everything because I just learned the value of this, and suddenly it's going to go away." It doesn't happen like that. So I wanted to make sure that was very clear that it can take up to three years for this thing to really, to become at the levels that you want from the work that you're doing today.
Crystal Jones (22:02):
Exactly. It is a process, but it is a process that can make a difference.
Joe White (22:07):
That's awesome. Well, Crystal, thank you. And I think one of the things that you pointed out earlier, and I just want to reiterate this, work with your insurer. Most insurance companies have plenty of resources. If you're showing interest and you really want to try and drive these numbers down, you want to get better at managing injuries, preventing them. There are all sorts of resources that are available. So again, I think this has been a very much-needed topic and I greatly appreciate it.
Crystal Jones (22:34):
You're welcome, you're welcome. Thank you.
Joe White (22:38):
Contact information for Crystal is available in the show notes for this episode. For those that are listening, I hope you found this discussion of value and benefit. If so, please help us spread the word, share the podcast with others that you know of that may have interests. In addition, we welcome any feedback you may have and would encourage you to review and rate us wherever you get your- wherever you access your podcast.
Joe White (23:01):
The SOS podcast series is brought to you by AEU LEAD, a consultancy dedicated to the needs of frontline managers. For additional information, or follow us on social media. Please use the links in the show notes provided. That's it for now. Stay safe and thanks for listening.
Crystal Jones joined The American Equity Underwriters, Inc. in January 2011 and serves as a Senior Underwriter. She works as both a USL&H and State Act underwriter as the State Act program works in conjunction with the USL&H coverage to offer companion coverage. Prior to joining AEU, Crystal worked for a local insurance agency. Crystal received her bachelor’s degree from the University of South Alabama in Communications with a minor in Sociology. She has earned both the Certified Insurance Service Representative (CISR) and Commercial Lines Coverage Specialist (CLCS) designations and was named a 40 Under 40 Award recipient at the 2020 Inland Marine Expo.