Is Your Business’ Experience Modification Rate Meaningless?

An industry colleague recently posted on LinkedIn: 'With very few exceptions, there is no direct relationship between the Workers’ Compensation Experience Modifier and premium! If the Experience Mod goes down, that does not mean that the premium will go down, or vice versa. Those who tell you otherwise are either ill-informed, or it is not in their interest to be informed.' I responded within the character limits: 'Great stuff! My original post FAR exceeded my character limit. In your world, you’re absolutely right, and in mine, absolutely wrong. You’re talking about underwriters pricing new or renewal business, and they “back into” a predetermined price. In my world, as a premium auditor, I work with clients’ in-force and expired policies. When I find Experience Modification Rating errors, reducing a client’s Experience Mod creates a direct relationship between the mod and premium. Carriers must apply revised, lower EMR rates, return corresponding premium, or adjust current payment schedules. After policy inception, there’s no mechanism for carriers to revise and 're-massage' the premium.' I partially agree with my colleague, but there’s a lot to unpack. Here’s my take on whether the Experience Mod is meaningless. If you need a primer on Experience Mods, click the link. One crucial point: workers’ compensation insurance pricing is heavily regulated. Each state has laws to protect businesses against discriminatory pricing. Getting Back to the Experience Modification Rate If you and I both run plumbing businesses in Chicago and buy insurance from the same carrier, like Zurich, our pricing should be similar, with the main difference being our Experience Mod. The Experience Mod adjusts premiums based on each business's work comp claims history. Fewer and less severe workplace injuries result in a lower Experience Mod and lower premiums. This means EMR rates are important and required. The law in Missouri states that the Experience Rating Plan is the exclusive means of adjusting premiums based on loss characteristics. So, why does my colleague feel that EMRs are now meaningless? He argues that insurers increasingly ignore the approved pricing system and use analytics to create their own loss projections, modifying premiums outside the Experience Rating Plan. How Do Insurance Companies Get Away With It? I recently discussed the 'Informational Asymmetry' between insurance companies and businesses, which heavily favors insurers. Workers' comp insurance is complex, and without expertise, it’s hard for business owners to assess their pricing accurately. Brokers may not always catch pricing discrepancies due to a lack of depth in technical knowledge. The best way to ensure competitive pricing is to periodically market your business and keep everyone honest. Getting Back to the Experience Modification Rating, Again Is it meaningless? No. The Experience Mod is an effective metric for assessing the safety practices within your firm. A falling Experience Mod should result in lower premiums. If not, it’s a red flag for investigation. If you encounter this issue, reach out to an independent auditor who can help secure a fair, accurate premium for your work comp program. As Supreme Court Justice Louis Brandeis said, 'Sunlight is said to be the best of disinfectants.' Businesses deserve fair pricing for their commitment to safety.

Is Your Business’ Experience Modification Rate Meaningless?

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