What is an Experience Modification Rate and How Does it Effect My Business

Your Experience Modification Factor (also known as the Experience Modification Rate)  will only apply to your workers’ compensation policy.

Your Experience Mod (X-mod) compares your workers’ compensation claims experience to other employers of similar size operating in the same type of business. Table with an example of an Experience Modification Rate If you have fewer claims than other companies of the same size and industry you will receive a higher Experience Modification Rate. This ratio is used against your annual premium and results as a discount. Experienced companies that monitor their workers’ compensation premium understand and utilize their Experience Mod annually. Understanding your experience modification rating and monitoring is another area in which you can reduce your Workers’ Compensation rates and costs.  Companies who effectively manage their Safety Programs not only understand how this works but also have assigned someone to monitor this on a regular basis.

It has a direct correlation to how much you pay in Workers’ Compensation Premiums. 

Where to find what your Experience Modification Rate is You will receive an updated Experience Modification Rating Sheet each year prior to your policy renewal date. Your Experience Mod is also listed on the declarations pages of your workers’ compensation policy but this will reflect last years Mod rate. You will want to contact the NCCI directly or your respective State Insurance Bureau and they will send you a copy of your new rate, which will be used for this years premium cost. Most companies whose annual premium are in excess of $5,000 and have been in business for more than 3 years will receive an Experience Modification Rate.

The requirements could vary per state and will if you have an individual Bureau that handles the rating outside of the National Council on Compensation Insurance (NCCI). Each year insurance carriers report to the calculating agency your class codes, payrolls and losses for the last five years.

The computing agency uses three complete years of data ending one year prior to the effective date of the rating period. For example, a rating in 2013 normally will not use 2012 but would include 2011, 2010, and 2009 in the formula. Don’t forget about your current years claims.

These usually present the greatest opportunity for cost reductions. Remember this years claims will affect your Experience Mod next year. How claims affect my Experience Mod Medical-only claims Workers compensation claims that require medical treatment only are usually less severe so employers should not be penalized when they occur. Consequently, any medical only claims are reduced by about 70% before they enter the formula.  You can take advantage of this by ensuring that injured employees remain at work when possible or return to work within the waiting period.  This is where an effective claims management and return to work program can have a dramatic effect.

Lost time claims The first $5,000 of a lost time claim is counted at full value. The dollar amounts after $5,000 is discounted. There is also a large claim cap limit to protect you from a catastrophic loss. Because the first $5,000 of each loss goes into the formula dollar-for-dollar, severity is a factor.

A single claim valued at $20,000 has less effect on your Experience Mod then 10 claims valued at $2,000. Companies seeking to minimize their workers’ compensation premiums should focus their safety efforts on reducing the frequency of lost time claims.

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