SubContractors Pressured to Get Workers’ Comp Experience Mods Down

If the anecdotal evidence can be trusted, it’s becoming more and more common that contractors are being put on notice that they will lose the opportunity to bid on jobs if their Workers’ Compensation Experience Mods hit a certain point.

To ensure that general contractors aren’t disqualified, it appears that some risk managers are putting pressure on sub-contractors to take safety seriously.

On the surface, this may seem like a prudent move since improving job safety is in everyone’s best interest.

Unfortunately, it seems that the pressure may be resulting in unintended consequences. Fearing they may lose work, some subs are reportedly cheating on their Experience Mod. At a time when jobs are scarce and the competition is fierce, it’s easy to see why a sub-contractor may do almost anything to avoid going out of business.

These arbitrary Experience Mod requirements ignore the fact that not all 1.0 Mods are equal. For a small contractor, even having one claim over the three years that are included on the Mod can send it shooting past the 1.0 mark.

The requirement becomes an even more impossible and ludicrous burden when it’s below 1.0. One report indicates that a sub was “required” to have a 0.72 mod to bid on a job. The particular contractor’s minimum Experience Mod was 0.74. There was no possible way for the sub to meet the demand, no matter how “safe” they were.

These irrational requirements are causing at least some subs to ask their insurance agent an obvious question and the one an agent directed to me: “My client’s Mod just went up over 1.0, how can we get it back down right now?”

The fear of losing work opportunities is real. Contractors are attempting to reallocate payroll to higher rate classifications and retroactively include excluded officers to increase the number of expected losses on the Mod and drop it a few points. It’s my experience that insurance companies are happy to collect the additional premium and re‐ file the unit stat data for a revised Mod.

I am familiar with a situation in which an employer reimbursed an insurance company for claims that had already been paid. This would be acceptable if it were a contracted deductible program, but it was simply an agreement with an insurance company employee to accept a large check to pay for the claim and have it wiped off the contractor’s Mod.

Such solutions also illustrate a difficult problem that insurance companies face today. Many insurance company employees, while skilled at what they do are not necessarily aware of how that may impact the overall Workers’ Compensation process. They may agree to changes that make sense to them and appear harmless, without being cognizant of the implications.

Ultimately, these actions could serve to alter the data that actuaries study to set expected loss rates, making it that much more difficult for employers to reach the magical line of demarcation that general contractors are requiring.

If general contractors want to be certain they hire safety‐oriented sub‐contractors, a more reliable metric than the Experience Mod should be considered. A good example might be OSHA records. While falsifying them is certainly possible, the penalties for doing so are far more onerous than getting caught monkeying with an Experience Mod.

Kevin Ring is the Lead Workers’ Compensation Analyst for the Institute of WorkComp Professionals, which trains insurance agents to help employers reduce Workers’ Compensation expenses. A licensed property and casualty insurance agent, he is the co­developer of a new Workers’ Comp software suite that will help insurance professionals in working with employers. He can be contacted at 828­274­0959 or kevin@workcompprofessionals.com.