Are EMODS Useful or Not Useful for Bid Qualifying?

Click for Video (Richard Faber)

Challenges in E-mod Use:

• According to Kathy Antonello, E-mods are often misused in project bidding decisions, potentially impacting contractors' eligibility.
• Link to an interesting article about this topic from Kathy-Click.
• The misuse arises from various factors, including misconceptions about risk, state-specific calculations, and excluding certain employers from the experience rating process.

Key Reasons Behind Misuse:

1. Nature of Business Impact:Excellent contractors specializing in high-hazard construction may face a higher E-mod due to the inherent risks associated with their work.
2. Deductible Strategies:Some states allow deductibles to influence E-mod calculations, providing a competitive edge to contractors opting for deductible policies. This can create an illusion of superior safety records.
3. Size Exclusion Dilemma:Smaller employers, not large enough to be experience-rated, may find themselves unable to bid on projects that require an E-mod, limiting their opportunities.
4. Wage Dynamics Distortion:Employers paying lower wages, despite having average loss experiences, may end up with a debit mod. Lower wages lead to lower payroll, reducing expected losses in the E-mod formula.

Illustrative Example:

• A scenario involving two identical construction companies, differing only in payroll due to higher wages, illustrates how E-mods can be misinterpreted.
• The calculation of E-mods for Employers A and B reveals the potential pitfalls in solely relying on this rating for safety assessments.

In-depth Analysis:

• Stripping down the E-mod formula to its basics, we see it as a ratio of actual-to-expected losses.
• The example highlights two identical companies with different payrolls, showcasing the potential misjudgments that can occur if E-mods are not considered in context.

Practical Implications:

• Using E-mods for intended purposes, such as adjusting manual premiums, ensures fair and accurate premium calculations.
• The example demonstrates how the credit mod appropriately adjusts the premium for the company with a higher payroll, aligning it with the identical company's premium.

In Summary:

• E-mods are not suitable for comparing the relative safety of employers, as illustrated by the ABCs of Experience Rating guide from NCCI, according to Kathy.
• Understanding the nuances is crucial; the key lies in using E-mods as intended – for adjusting premiums based on loss experience.

Please let me know what your thoughts are.