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.
On the surface, this seems like a prudent move, since improving job safety is in everyone’s best interest.
Unfortunately, the pressure may result in unintended consequences. Fearing they may lose work, some sub-contractors are seeking ways to manipulate 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 is 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. I spoke to an agent whose client was required to have a .72 mod to bid on a job. The particular contractor’s minimum experience mod was .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 sub-contractors to ask their insurance agents 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 lower-rated payroll to higher rate classifications and retroactively include excluded officers to increase the amount of expected losses on the mod and drop it a few points. I have seen several instances where insurance companies are happy to collect the additional premium and re-file the unit stat data for a revised mod.
If these manipulations become too frequent, they could serve to alter the data that insurance-company and rating-bureau actuaries study to set premium rates and 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 ensure that they are hiring sub-contractors that take safety seriously, a more reliable metric than the experience mod needs to be considered. While it is possible to falsify OSHA records, the penalties for doing so are far more onerous than getting caught monkeying with the experience mod.
The Bureau of Labor Statistics offers a calculator online that can give an employer their injury and illness rates as well as DART rate, as compared to like businesses in their industries and states. These numbers, backed up by OSHA records, would provide general contractors with a much more trustworthy accounting of the relative safety record for subcontractors.