There’s Nothing Wrong with a 1.00

iStock_000002585243SmallThe number 1.00 means different things to different people. In baseball, 1.00 represents a perfect batting average. But in college, a 1.00 grade point average is about as bad as it gets. In workers’ compensation, a 1.00 experience modifier, or e-mod, has long been seen as the standard for determining whether or not a company is safe, but that may be changing.

There are a number of factors to consider when evaluating safety, and simply questioning whether or not a contractor has an e-mod of 1.00 or below may not be the best measurement. A 1.00 e-mod means something different today than it has in years past, and its meaning will continue to change in the future. Simply put, the meaning of a company’s e-mod is in transition. It is a moving target and may not be the best gauge of a contractor’s safety standards and practices.

Watch for Changing E-mods

Effective July 1, Texas will utilize the National Council on Compensation Insurance (NCCI) experience modification plan. The calculation of experience modifiers will undergo several changes all at once, which could have a material impact – up or down – on a policyholder’s experience modifier.

The changes to the e-mod formula could trigger increases in the experience modifiers for many contractors, even if there are no changes in loss experience. For some contractors, the increase could be significant. The change could bring about negative consequences as many project owners and general contractors use the experience modifier as an indicator of the contractor’s safety record, which is why it’s time to change the way we think about e-mods.

An unexplained e-mod increase could inadvertently disqualify Texas contractors from competing for some projects if their experience modifier rises above 1.00. Given the circumstances, project owners should revisit the requirements of an experience modifier below 1.00 because it doesn’t indicate what it has traditionally.

What Have You Done for Me Lately?

Another potential shortcoming of using the experience rating plan as a gauge of safety is that it looks back as many as four years to assess current safety levels. When evaluating someone’s abilities, do you rely on what they did two to four years ago, or do you look at their performance over the last 12 to 18 months? The e-mod completely ignores a company’s safety performance and experience in the last 18 months. Project owners would be well advised to assess what contractors are doing today to reduce workplace accidents, and not penalize safety-conscious employers for accidents that occurred three or four years ago. The company could have made substantial improvements in safety and the employees involved may be long gone from the company. On the other hand, if you trust the modifier as a gauge for safety, you may not recognize that a company that was using safe practices a few years ago could conversely be much less safe now.

What E-mods Really Represent

With the meaning of e-mods changing from an often-used measurement of safety to something far different, you may be wondering why they’re so important. In short, e-mods help the insurance industry assess premium more accurately. They represent the point at which a company ranks within a rating class code containing similar companies, with different exceptions of loss. It’s a necessary part of assessing workers’ compensation premium, but is an inaccurate gauge of performance.

While companies with high e-mods are generally thought of as unsafe, the more correct interpretation of a high e-mod is often that the business is in a class grouping that has several industries with very different exposure risks, and additionally they are in an industry that has a higher risk than other industries in that grouping. For instance, all roofers will be placed in the same class code, but their exposures can vary greatly depending on the type of roofs they work on, the height of the buildings and whether they’re commercial or residential. They are all classified the same, but each business has unique risks. A higher e-mod may be assigned to a business working on tall, commercial buildings because they are in a riskier industry, but that doesn’t necessarily mean they have less safe practices than a roofing company that works on low, residential buildings and faces less risk.

Looking Ahead

E-mods are a tool used by the insurance industry to guide rate decisions. They are not report cards of a company’s safe practices. Some may look to a company’s e-mod simply because it’s difficult to evaluate truly outstanding performance, but using that as a single gauge can potentially lead to faulty assessment of risk expectations. With changes coming, risk managers should turn their focus to evaluating a company’s current safety and business practices rather than relying on a number.

If you’d like to know more about upcoming NCCI changes and what they could mean for your business, visit

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