The greatest misconception surrounding workers’ compensation insurance is that there is nothing a wash owner can do to affect the premiums. However, your actions — or lack thereof — are the greatest influencer there is on your work comp premiums.
Every insurance carrier has a fixed level of discounts (credits) available to be used at the discretion of the underwriter. The underwriter can also add additional premium (debits) at his or her discretion. These credits and debits are influenced heavily by the actions and attitude of the owner and manager at any wash operation and generally range anywhere from -25% to +25% on the base premium level. If a wash owner has a history of cooperation and compliance with safety recommendations, that will have a strong influence with the underwriter in the application of discretionary credits.
The mod factor
In addition to the discretionary pricing through the carrier’s underwriting, there is also the concept of a “modification factor” that is applied to every work comp policy. Because workers’ compensation insurance is mandatory in most states, it is an industry that is rich with statistical information. Each state subscribes to an independent statistical organization or bureau to gather and analyze data and trends in the industry. Although some states have their own bureaus, for most states, this organization is the National Council on Compensation Insurance (NCCI).
Every year, insurance companies are required to submit to the NCCI or state bureaus information for each employer they insure. These reports, known as unit statistical reports, include classification codes, audited payrolls by class, and premium and claim information. The statistical organization then collects the data, which allows it to predict expected losses for each payroll classification based on the historical performance of that business class.
This is where the mod factor comes into play. It is a premium multiplication factor that is calculated for each employer who qualifies (typically those with a three-year average premium of over $5,000, depending on the state). The mod factor is a value that compares the claims paid for a specific wash operation to the claims that would be expected of all wash operations of similar size (payroll).
A modification value of 1.00 is average, meaning the frequency and severity of actual losses is exactly what would be expected. A mod factor greater than 1.00 means the wash operation had more losses than would be expected during the rating period, and a mod of less than 1.00 indicates the employer’s losses were less than expected for the rating period. An individual wash operation’s mod factor is calculated only using claims information from the three most recent full years but not including the current year. Contributing factors include the size of each loss along with frequency of losses.
Finally, these claims are compared to expected losses for the class and size of the organization, which ultimately determines the mod factor assigned to the individual employer. Credit mods (less than 1.00) reduce premium, while debit mods (greater than 1.00) result in a premium surcharge. For example, if your carwash has a mod factor of 1.24, you will be assessed a 24% surcharge (increase) on your base workers’ compensation rates.
Thus, there is a simple conclusion for wash owners: Lower your mod, and you will lower your workers’ compensation premiums. Right now, you are no doubt asking yourself: How do I get my mod factor below 1.00? First and foremost, create an atmosphere and culture of safety for every wash location.
Most areas of concern in the carwash industry fall within five categories: chemical exposure, mechanical hazards, physical hazards, personal protective equipment and noise exposure. Reducing employee exposure in these areas will help mitigate both the frequency of losses along with the severity of those losses. It is worth the investment to work with a safety consultant on the following areas in your wash operations.
These can be controlled through personal protective equipment (gloves, eye wear, etc.).
- Pre-soak may contain pH levels as high as 13.
- Tire shine may contain pH levels as high as 14.
- Coatings/rinses/waxes should be properly labeled, and all labels should be clearly visible and written so employees know how to handle them safely and understand the hazards/treatments.
- Airborne toxicants include chemical mists as well as diesel/gas engine emissions.
These can be controlled through personal protective equipment, equipment inspections and maintenance, safety procedures and training.
- Unguarded moving parts (rollers, arms, rotating parts, etc.)
- Employees struck by vehicles. (All at-risk employees should wear high-visibility safety vests.)
These can be controlled through site maintenance, employee awareness and training.
- High temperature dry blowers present a burn risk.
- Water, soap, wax and other chemical solutions contribute to slip/trip/fall hazards.
- Inclement weather and temperature extremes present unique hazards.
- Chain/conveyor systems with open exposures pose dangers.
Personal protective equipment
This should be used to protect against those hazards that cannot be controlled or eliminated through other means.
- Equipment that is properly fitted, such as safety glasses, gloves and highly visible vests, should be provided to appropriate employees.
- Equipment should be regularly inspected and maintained.
Most carwashes fall within a 75- to 90-decibel level environment.
- If noise levels are above 85 decibels, as an eight-hour time weighted average, you should provide affected employees with hearing protection, and you must implement a hearing conservation
- Most insurance carriers can assist with auditing the noise levels at your operations.
One other observation regarding mod factors is that the NCCI and insurance carriers do make mistakes and/or report information incorrectly. I have worked with owners who found inaccurate, outdated or incomplete data provided to NCCI by insurance carriers. Make it an annual practice to review the modification worksheet for accuracy. The worksheet can be ordered directly, or your current insurance agent should be able to provide you with a copy.
In conclusion, by increasing employee safety awareness and training, you will provide a safer workplace environment for both employees and customers. Remember, lower your mod … lower your premiums. If you have questions about starting a safety awareness campaign at your wash, contact your workers’ compensation or business insurance carrier, and they should be able to assist or direct you to a competent provider.
Now, go slay a dragon.
Dan Tharp, CIC, RWCS, is licensed in all states (except Alaska and Hawaii) and is the vice president of business insurance lines for Pearl Insurance. Dan has been assisting business owners in protecting their operations, customers and employees for over 25 years. For questions regarding this article or any other insurance matter, he can be reached at (800) 447-4982 or [email protected] Or, visit www.pearlinsurance.com/automotive.