Experience modifiers don’t reflect safety: SpeakerReprints
INDIANAPOLIS — Experience modifiers may not be the best tool to use in prequalifying contractors and are not a reflection of safety, according to an expert speaking Monday at the 2017 IRMI Construction Risk Conference in Indianapolis.
Experience modifiers measure an organization’s past cost of injuries and expected future injury costs. The experience rating, which is determined by the National Council on Compensation Insurance for 38 states, is applied to the premium paid by the policyholder.
However, “Experience modification factors were really designed to get rid of pricing inequities, to be able to surcharge employers whose injuries were worse than expected for their industry and to be able to reward employers whose injuries were better than others in their industry. Experience modifications factors have nothing to do with safety,” said Sonja J. Guenther, Denver-based vice president at brokerage IMA Financial Group Inc., speaking at a session of the annual gathering sponsored by the International Risk Management Institute Inc.
Experience modifiers are being used to determine safety even though they were never designed for that purpose; and things like lax safety commitment, reduced payrolls, failure of offer light duty, errors and modification factor formula changes can impact your modification factor, said Ms. Guenther.
Ms. Guenther discourages the use of experience modifiers in prequalifying contractors.
“You know they have consistent error ratios, I have claims reported in the wrong state, I have estimated payrolls instead of audited payrolls, I have claims that don’t even belong to my client enrolled to anther employer,” she said.
In addition, some contractors do not have a modification factor, said Ms. Guenther. “A lot of our startups don’t have mod factors … not every employer is large enough. You have to reach a certain premium threshold. If I’m looking at a mod factor in the 50s, 60s, that pretty good. The reality is that this is a mathematical formula. It doesn’t mean they are safe, it means that they are large. If I have mod factors in the 40s and 50s they are running tens of millions of dollars through that formula. That’s why the mod factor is low,” she said.