Erin Richards, an account executive for Federated Insurance,
spoke about worker’s comp “mod factors” at the Florida Refrigeration and Air
Conditioning Contractor’s Association (FRACCA) annual conference in Orlando.
ORLANDO - Insurance costs have been giving business owners
fits. Some have asked employees to share the costs while others have completely
dropped coverage for employees. In either case, the results are met with
unhappy and dissatisfied employees who must choose to shoulder some of the
insurance costs or look for another employer.
Fortunately there are ways for employers to reduce the high
insurance premiums. “There are a lot of things you can do to keep insurance
costs down,” said Erin Richards, an account executive for Federated Insurance.
Richards was a guest speaker at the Florida Refrigeration and Air Conditioning
Contractor’s Association (FRACCA) annual conference in Orlando. “You are not
forced to say ‘this is not working’ and unable to do anything about it,” she
“Insurance can be a controlled business expense or an
unnecessary profit leak.”
Richards talked about the Experience Modification Factor,
which is an adjustment to the insurance premium based on historic loss and
payroll data. She said the “mod factor” has been trending down in recent years,
resulting in lower insurance costs.
According to Richards, the industry-wide modification factor
dropped from 1.5 in 2002 to 0.98 in 2007. In order to explain that, she used
the following $100,000 premium:
• $100,000 x 1.00 experience mod = $100,000
• $100,000 x 1.51 experience mod = $151,000
• $100,000 x 0.98 experience mod = $98,000
• $100,000 x 0.73 experience mod = $73,000
She said the industry averages for small-sized businesses is
a mod factor in the 0.90s, medium-sized businesses in the 0.80s, and
large-sized businesses in the 0.70s.
Figure 1. (Click on the image for an enlarged view.)
KEEPING THE MOD FACTOR LOW
Richards believes that the best way to keep mod factor
ratings low is to track all of the worker’s compensation insurance claims. That
requires a dedicated staffer to analyze claims on a regular basis, usually
Some of the things that should be analyzed include current
workers compensation premiums and deductibles. She said that a higher
deductible lowers the mod factor and gave an example of how a lower mod factor
can save insurance costs (see Figure 1.)
One FRACCA contractor at the seminar asked Richards if he
should fire an employee due to how he is a possible accident risk. Her reply
was “Cut him.”
She also added some other ways to lower the mod factor,
• Recalculate mod by removing certain types of recurring
injuries, such as back or eye injuries.
• Prompt claims reporting. Claims reported after seven days
result in 17 percent higher costs.
• Send employees to doctors in the health care network,
which can result in an average of 15 percent savings on medical portions of
• Have a light-duty return to work program and ensure it is
• Watch for hidden costs in insurance premiums. Richards
said, “For every dollar in direct costs there are one to four dollars in hidden
Richards added the industry average for hidden insurance
costs is $29,052 per year. “If a business operates on a 2 percent profit margin
it would need $1,452,600 in sales to offset those hidden costs,” she said.
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