Experience Modifications have been used for decades as a method to adjust employer’s workers’ compensation premiums based on their own loss experience. Good experience would earn a credit experience modification, an experience modification below 1.00. Loss experience higher than anticipated in the rate results in an experience modification greater than 1.00. This is all old news. So what is new? Three inquires in the last 6 months from our policyholders about their experience modifications. That by itself is not usual. What was unusual is that all three had a significant panic in their call. In each case, the insured’s largest customer was letting them know that future work was being discontinued because their experience modification was above 1.00. This apparently new policy is being used by some major manufacturers, which is to require that all work by support shops must be completed by employers with a credit experience modification (1.00 or less). It has not been our experience to see this requirement mandated by major manufacturers.

Here is the early warning: If you work with major manufacturers, take a second look at your experience modification AND your loss control program. If your experience modification is above 1.00, be prepared for notice from the large manufacturing entities. This caught our three shops by surprise. In one of the three cases, the work “cutoff” would mean a loss of 60% of their business. As of today, a couple weeks before press time, two of the three cases have resulted in our policyholder having been granted an exception by the large customer. Documentation of active loss control programs and an explanation of experience modification calculations based on our insured’s own experience was helpful to make the case for an exception for our policyholder. Case number three is still in negotiations.

While loss control results have always been rewarded through the experience modification process, this new marketing paradigm gives employers another reason to control losses.