Using the Experience Mod to pave way for more business

Pressed by today's economic conditions, more companies are looking for anything and everything to gain a competitive advantage. While often overlooked, a key differentiator is an employer's Experience Modification Factor (MOD). Workers' Compensation is both a significant employee benefit and also a powerful business benchmark that is carefully scrutinized by those who are evaluating possible business partners.

The MOD is the biggest driver of a company's Workers' Compensation rates, the lower the MOD, the lower the rates. Therefore, companies with lower modifiers have a lower cost structure, which helps make companies more competitive, leading to more jobs and higher profitability. The exact opposite is true as well; higher MOD, leads to higher costs, and it is more difficult to compete for work. However, there are more dire consequences for those with high MOD's—no work.

Let's face it. In today's environment, companies and Risk Managers are using the MOD as a significant determining factor to disqualify firms from bidding on projects. If an experience modifier is over 1.00, the company may be viewed as unsafe, and, therefore, disqualified. Companies know they need to do something about their MOD, but do not know what to do. The good news is that the MOD is as manageable as any other business function, as long as people are motivated to do so. Here are a few examples:

• A machine shop with a 1.3 MOD six years ago has seen it drop to 0.745. Before implementing changes to improve their MOD, the company was denied a multi-million dollar contract, even as low bidder, as the purchasing company's risk manager viewed them as unsafe and therefore questioned the quality of their work. They now have been able to win that contract and have grown from 58 to 110 employees.
• An asbestos abatement and insulation contractor had a 1.02 MOD. Although barely above 1.00, this MOD prevented them from receiving 11 jobs in a three-year period despite being low bidder, as they were "disqualified" due to being "unsafe." The contractor could not qualify for private work and therefore had to try and compete in the very low profit margin, highly competitive government arena. After implementing a "zero-accident" safety culture and adding processes to address lost time injuries, within three-years, the contractor had one of the best modifiers in the state. Recently, they were even asked to take over a job from a contractor who was thrown off of it due to that contractor's MOD going over 1.00. The company went from barely surviving, to thriving.
• A 55-employee cable and fiber optic line installer with a 1.65 MOD was informed by the telecommunications company that they had two years to attain compliance with their safety guidelines, including a requirement of being below 1.00. Since the telecommunications company represented 90% of their work, losing the contract would be disastrous.
• Step one was working with the contractor and the telecommunications company. The contractor was given an extension to four-years, but they had to hit benchmarks in terms of number of injuries that would be verified through loss runs from their insurance company and their OSHA logs. The second step, was putting in an aggressive behavior based safety program as their frequency had to be cut by 60% to be in compliance in the first year, and 80% in two years. Based on their results, they were compliant and actually went 19 months without an injury. They will be in compliance with a MOD below 1.00 in three-years, which will also open the door to bidding on work from other telecommunication companies.

Each of these companies is far better positioned to compete by improving its Workers' Compensation performance.

With such striking results, what keeps companies from achieving such stellar performance? Our experience points to two primary factors:

• Lack of owner support and commitment for improving the organization's operations. This includes difficulty in scheduling training sessions, meetings consistently being cancelled and an overall company culture that is driven primarily by the owner's unwillingness to change, focus on productivity issues only, or "too many irons in the fire."
• The insurance company's reluctance to support an appropriate claims management process. Claims adjusters often feel threatened by a consultant's claims management staff and avoid communicating with them. Unfortunately, any insurance company can have "unseasoned" adjusters, those who don't fully understand the Workers' Compensation laws and really don't have any "skin in the game."

But it doesn't need to be this way. Things can go right under the right conditions:

• Obtaining the full support of owner and executive management staff to implement cultural changes within an organization. Management commitment is the most important factor in changing the attitude of the workforce. Injury prevention and injury management are 100% controllable expenses. Since these are employee costs, it starts at hiring, training, monitoring employees for continuous improvement: Plan, Do, Check, Act.
• Conducting specific training programs with front line supervisors and implement necessary policies and procedures.
• Conducting a comprehensive loss trending analysis to identify those losses that are driving the company's claim frequency and severity. Then, with an evaluation of the findings, develop and implement processes to change the negative culture that is driving both claims frequency and severity.

All of this is anything but an academic exercise. It's the process for creating a happy, productive and injury-free workforce, along with a business that is successful because it has a competitive advantage that makes it attractive to customers. And behind it all is the Experience Modification Factor. Risk Managers use the MOD as a benchmark rather than OSHA Recordable and DART (Days Away, Restricted Time). Unlike the OSHA log, third parties promulgate the MOD, such as the state Workers' Compensation rating bureau and insurance companies that create and provide the data, which are viewed as reliable sources.

The bottom line is clear: making a diligent effort to get a company's Experience Modification Factor to the lowest allowable level will produce a competitive advantage.