Workers’ Compensation - Influence Premiums Through Loss-Control Measures
By Daniel Tharp
A number of rating factors go into the final calculation of premiums for your Workers’ Compensation Insurance program. These include employee job classifications, annual payroll amounts, officer/owner classifications, location of employees, and prior losses. One additional factor, that can have a major influence on rates, is the Experience Modification Factor (mod factor) of your car wash operations.
Workers’ Compensation is a class-rated insurance program. That is, within a state, an insurance company applies the same rate to all employers who fall into a given class. For example, all clerical employees are subject to the clerical rate, all janitors are subject to the janitorial rate, etc. The rate applied in each class is an average rate and does not recognize any individual characteristics of the employer. Because of this, there is a need for a statistically supported means of differentiating one business in a given class from another, for the purpose of determining policy premiums. This is where experience rating comes in — the great equalizer.
Because workers’ compensation insurance is mandatory in the majority of states, it is an industry that is rich with statistical information. Each state subscribes to an independent statistical organization or bureau to gather and analyze data and trends in the industry. Although some states have their own bureaus, for most states, this organization is the National Council on Compensation Insurance (NCCI). Every year, insurance companies are required to submit to the NCCI or state bureaus information for each employer they insure. These reports, known as unit statistical reports, include classification codes, audited payrolls by class, and premium and claim information. The statistical organization then collects the data, which allows it to predict expected losses for each payroll classification based on the historical performance of that business class.
MOD FACTOR ROLE
This is where the mod factor comes into play. It is a premium multiplication factor that is calculated for each employer who qualifies (typically premium in excess of $10,000 or a three-year average premium of $5,000, depending on the state). The mod factor is a value that compares the claim profile of the employer to the claim profile that would be expected of an employer of similar size (payroll) in the same industry (class codes). A value of 1.00 is average, meaning the frequency and severity of actual losses equaled the expected losses. A mod factor greater than 1.00 means the employer experienced worse than expected losses during the rating period, and a mod of less than 1.00 indicates the employer’s losses were better than expected for the rating period. An individual employer’s mod factor is calculated using claims data from the three most recently completed years, excluding the current term. Contributing factors include size of each loss along with frequency of losses. Finally, these adjusted claims are compared to expected losses for the class and size of the organization, which ultimately determines the mod factor assigned to the individual employer. Credit mods (less than 1.00) reduce premium, while debit mods (greater than 1.00) result in a premium surcharge. For example if your car wash has a mod factor of 1.24 you will be assessed a 24 percent surcharge (increase) on your base Workers’ Comp rates.
LOWER THE MOD FACTOR
So the million-dollar question becomes: How do I get my mod factor below 1.0? First and foremost, create an environment of safety. Frequent losses are heavily weighted in the calculation. What’s more, frequent losses often result in the occurrence of a severe loss. An employer that invests in eliminating work related losses will save in the long run. However, it is also important to check the calculations on the experience modification worksheet each year. Most calculations are correct, but mistakes can occur. Common mistakes include inaccurate, outdated, or incomplete data provided to the statistical rating bureau.
Once you have made certain the data is correct the next thing to do is create an environment of safety in your workplaces and an awareness of safety with your staff.
Most areas of concern within the car wash industry fall within five categories: Chemical Exposure, Mechanical Hazards, Physical Hazards, Personal Protective Equipment, and Noise Exposure. Reducing employee exposure in these areas will help mitigate both the frequency of losses along with the severity of those losses.
Chemical Exposures — Controlled through personal protective equipment (gloves, eye wear, etc.). • Pre-soak: may contain pH levels as high as 13 • Tire shine: may contain pH levels as high as 14 • Coatings/rinses/waxes: proper labeling of chemicals; labels should be clearly visible and written so employees know how to handle them safely and understand the hazards/treatments • Airborne toxicants: chemical mists, diesel/gas engine emissions
Mechanical Exposures — Controlled through personal protective equipment, equipment inspections and maintenance, safety procedures, and training. • Unguarded moving parts (rollers, arms, rotating parts, etc) • Employees struck by vehicles (all at-risk employees should wear high visibility safety vests)
Physical Exposures — Controlled through site maintenance, employee awareness, and training. • High temperature dry blowers: risk of burn • Water, soap, wax, and other chemical solutions contribute to slip/trip/fall hazards • Inclement weather: temperature extremes present unique hazards
Personal Protective Equipment — Should be used to protect against those hazards that cannot be controlled or eliminated through other means. • Equipment should be provided to appropriate employees that are properly fitted such as: safety glasses, gloves, and highly visible vests • Equipment should be regularly inspected and maintained
Noise Exposure — Most car washes fall within a 75 – 90 decibel level environment. • If noise levels are above 85 decibels, as an eight-hour time weighted average, you must provide affected employees with hearing protection and you must implement a hearing conservation program.
By increasing employee safety awareness and training you will provide a safer workplace environment for both employees and customers. This will not only help to control and lower your mod factor, it will also increase productivity and employee morale. If you have questions about starting a safety awareness campaign at your car wash, contact your Workers’ Compensation or business insurance carrier and they should be able to assist or direct you to a competent provider.
Daniel Tharp, RWCS (Registered Workers’ Compensation Specialist), is the vice president of sales for The Insurancenter. He can be reached at DTharp@theinsurancenter.com or by calling (800) 444.8675.