How to Assess Risk in Clients with Little Loss History / No Ex-Mod

A new client comes to you looking for workers compensation insurance. They’re a small organization, but they meet the state’s requirements and need workers compensation coverage. They’ve already been turned down or ignored by other brokers and insurers because they have a limited loss history or don’t qualify for an ex-mod.

What do you do? Refer them to the insurer of last resort or state fund?

You don’t need to turn away clients with little loss history. Their loss history and ex-mod aren’t the only two factors that carriers can use to assess them.

Data points from across the whole organization tell a more compelling story of risk than claims alone. Here’s how you can assess risk in clients with little loss history or no ex-mod.

Dive into Your Client’s Approach to Risk Management

Whether they have a long history or no history at all, your client’s loss history and ex-mod don’t tell the whole story of the company. Because workers compensation coverage only reflects a client’s payroll as well as their experience, you can use company-wide and industry data to better represent their overall approach to risk management.

Benchmark with Bureau of Labor Statistics Data

Before you get into the specifics offered by your prospective client, get acquainted with their industry and roles. The Bureau of Labor Statistics (BLS) provides a high-level look at safety by industry, role, and region.

The data is very useful because BLS works with huge sample sizes. The data quality grants you a more comprehensive look at what risk looks like and gives you a baseline for comparing your clients.

Some of the data points to look for include:

• Data by industry
• Data by jurisdiction
• Access to medical providers/networks
• Availability of modified work

Evaluate Hiring Practices

With the high-level industry data in mind, you’re better prepared to become acquainted with the client’s business.

Your client’s first task in risk management is hiring dependable employees committed to the company’s safety culture. Proper screening is the simplest way to avoid hiring employees who could become a hazard.

A few essential items to look for include:

• Does your client use a written application process?
• …write comprehensive, accurate job descriptions?
• …have a hiring/testing policy?
• …use an interview phase?
• …use union hiring practices?
• …check references and other records (driving, criminal)?
• …complete ADA-compliant physicals?

The answers to these questions give you a better idea of what type of employees the company recruits and whether they’re engaged with their work and committed to safety.

Other HR-related questions to ask include:

• Does the organization use formal training?
• Do they have a managed care program?
• Are employees assigned to various jobs, or do they stick to one role?
• What kind of turnover does the organization see?

Review Management and Operations

The data gathered from the day-to-day management of an organization also helps you gauge risk.

Every organization should have a safety management program in place, and they should have buy-in from management and oversight from safety committees. It’s always helpful to go through clients’ safety and risk management plans regardless of their loss history.

You’ll also want to go through their safety systems. Do they run a paper-based safety management program, or do they use safety software for implementation? Clients who use safety software are more likely to also use leading indicators to prevent accidents before they happen rather than rely solely on recording incidents.

Assess Hazards and Controls

A complete view of hazard-mitigating controls allows you to get into the finer details of what risk looks like at your client’s site. You’ll want data on:

• Hazardous materials
• Machinery and equipment
• Material handling
• Fire-prevention exposure

A visit to their site is also beneficial when possible. You’ll check the client’s premises for hazards like:

• Clear exits and pathways
• Functional fire alarms and warning devices
• Installation of fire protection devices
• Clear walkways, stairs, and aisles
• Good lighting
• Satisfactory lockout/tagout procedures
• Safe parking lot

These seem like pretty ancillary data points. However, these are all safety hazards that have simple cures. (They’re also points that clients would rush to fix if they have an OSHA inspector in their lobby!)

What Does the Data Tell You?

The freely available data collected tells you so much more about what a client’s day-to-day risk is than their claims history alone. It spells out their strengths and weaknesses — and how seriously they take claims prevention.

For example, a client may not have an ex-mod (their payroll may be too low). Still, they may select employees carefully, document their hiring and training processes, identify and control hazardous materials, and ensure their emergency procedures are under control.

Use the Right Past Claims Data

If your client also had workers compensation coverage in the past, then they will have a loss history — even if it is a limited one.

As a general rule, there’s no need to rely on the organization’s overall claim frequency statistics exclusively. 

Additionally, the existence of a loss history isn’t a reason to neglect the data we suggested above. Again, a loss history only tells you something happened. It doesn’t tell you about all the work that did or didn’t go into preventing it. When you have both sets of data, you can put them into context and start considering acceptable risk.

What kinds of data should you look at in addition to any losses?

Look out for specific loss trends. Do employees in one particular department report a higher rate of slips, trips, and falls? Do claimable incidents seem to primarily take place on the third shift? 

In other words, what do the claims have in common, if anything?

Loss drivers are another key indicator useful for brokers. What’s the average claim size? Where does the money go? Are the costs related to medical expenses? Pharmacy costs? Time away?

A look at who gets injured is also important. Do claims happen across age ranges? Are they limited to younger, new workers? Or older workers? Are claims happening to those who come into their role with a pre-existing issue, or are they injuries first encountered at work?

Talk to Clients About Acceptable Level of Risk

There’s no such thing as zero risk. Risk is inherent in business, just as it is inherent in life. A product and process can only be relatively safe. So, assessing clients is less about looking for a 100% safety guarantee and more about finding an acceptable risk level.

Knowing your client’s acceptable level of risk allows your client to set measurable targets for loss prevention. These, in turn, give a better indication of loss than a limited history or ex-mod alone (if they had one).

A few of the questions to ask include:

• Is the organization allocating sufficient resources to loss prevention?
• What resources does the organization need to prevent accidents?
• How effectively does the organization capitalize on external resources?

Of course, risk management and loss prevention best suit everyone when your client can not only prevent claims but also see an improvement to their bottom line. So when looking at the risk management options, take time to dive deeper and figure out:

• What will the return on investment be for loss prevention initiatives?
• Are the loss prevention services generated those that will create the greatest return?

Data is Your Friend, Regardless of Loss History

For too long, the insurance industry focused too heavily on past losses. Even the ex-mod doesn’t do enough to work out the subtleties that make your clients’ organization safer or less safe than their industry.

So when a client comes to you with a limited loss history or no ex-mod, you should feel empowered to reject the gut instinct to hand them over to the insurer of last resort.

When you don’t have a loss history or ex-mod, you can promote your client’s risk management strategy. Identify the key safety team members or safety manager and grant them insight into your client’s risk system. When you combine a focus on safety with an accurate application that meets the underwriter’s appetite and guidelines, you’re more likely to not only get an accurate quote but perhaps to get something more favorable than your client might have otherwise received.

Data is your friend, regardless of whether your client qualifies for an ex-mod. Getting familiar with their safety landscape not only enables you to assess risk in these otherwise hard-to-insure clients. It also aids you as you help them minimize their potential claims and navigate the claims process when an injury couldn’t be prevented.