If your business carries a workers’ compensation policy, you’ve likely heard the term ‘Ex-mod’ or one of its many variations like mod, e-mod, experience mod, or EMR. Ex-mod is short for experience modifier or experience modification rate (EMR). It’s a helpful tool that business owners can use to control their workers’ compensation premiums.
The Ex-mod factor is a multiplier used to calculate your workers’ compensation insurance premium. It shows how your claims history compares to other businesses similar in size and types of jobs. Not every business is assigned an Ex-mod. Only organizations with a workers’ compensation premium above a certain threshold—typically around $3,000-$7,000—are eligible.
How are Ex-mods calculated?
For those who are eligible, their score is calculated by a state or national rating bureau, not the insurer. Most states use the National Council on Compensation Insurance (NCCI) for data collection and Ex-mod calculations. Your Ex-mod is recalculated each year about 90 days before the policy renewal date. You’ll receive an official notice from the rating bureau prior to your policy renewal, and both you and your workers’ compensation insurer will be alerted of your score after it’s determined.
The formula used to determine your Ex-mod compares actual losses to expected losses. Actual losses are claim costs resulting from work-related injuries that an insurance company has paid or expects to pay in the future. Expected losses represent the statistical average losses that a business of a similar size and in the same industry is expected to experience. The state and national rating bureaus calculate expected losses using statewide claim data.
In its simplest form, the experience modification rate formula looks like this:
Experience Modification = Actual Losses / Expected Losses
In order to evaluate actual losses, the formula considers the three-year period starting four years before the current policy effective date. An employer with a policy that renews on January 1, 2023, for example, will generally have an Ex-mod that uses the loss experience that occurred during policies that were effective 1/1/2019–1/1/2020, 1/1/2020–1/1/2021 and 1/1/2021-1/1/2022. This period of time is referred to as your experience rating period. Because loss data for the 2022 policy period is not yet valued by the insurance carrier or reported to the rating bureau, it is not used when the 2023 Ex-mod is being calculated.
How do Ex-mods impact workers comp insurance costs?
An Ex-mod of 1.0 is the industry average. An Ex-mod above 1.0 represents higher expected losses, resulting in a higher premium. An Ex-mod below 1.0 reflects better-than-expected losses and will translate to a discounted premium. The higher your Ex-mod, the higher your insurance cost. For example, if your base premium is $100,000 and your Ex-mod is 125% (1.25), your premium will be $125,000. If your Ex-mod is 80% (.80), you’ll pay a discounted rate of $80,000.
And therein lies the good and the bad news for business owners: your Ex-mod score can either penalize or reward you for actual loss experience.
How to Impact Your Ex-mod
If lower premiums are music to your ears, keep reading. It all starts with understanding your experience modification rate. While most factors that determine your premium are out of your control entirely, the Ex-mod is the one thing you can impact by implementing programs that will curb actual losses.
Here are a few ways you can optimize practices and procedures in order to lower your Ex-mod.
Establish an effective safety program. Your safety plan should involve training your employees and observing workers to identify the causes of loss. Put this program in writing and communicate safety rules and regulations frequently—both formally and informally, in person and through posted messages. Make safety part of your everyday culture. Workers want to know that you care about their well-being, and expressing your concerns about their safety can also boost morale. ICW Group provides our insureds with safety tools and resources to help everyone go home safe. A webinar is also available that provides actionable steps to impact your Ex-mod.
Clearly define and assign responsibilities. Executives should set loss reduction goals, and managers should have departmental goals that are in line with executives. Supervisors and managers should be accountable for safety orientation, training, and inspections. It’s important to establish a top-down commitment to safety. Management should emphasize it daily and include it in performance reviews.
Investigate near-misses and injuries. Take corrective action to eliminate dangerous situations immediately, and carefully track all incidents. Most claims can be avoided by tracking the factors that led up to an incident and taking action to ensure they don’t happen again.
Every reported claim should trigger a detailed action plan. A lack of follow-up can cause claims to slip through the cracks until policy renewal time when they must be dealt with. Businesses should implement a workers’ compensation claims management program to manage any outstanding claims and focus on efficiently resolving them.
Focus on creating a culture of safety during the hiring process. Hiring an employee who is not cut out for essential job functions will end up increasing the risk of an injury.
Create a strong return-to-work program. Even if an injured employee can’t return to their regular duties, bring them back as soon as possible by providing modified tasks or reduced hours. This will help employees recover faster, maintain workplace relationships, stay in the routine of working, and reduce the overall cost of the claim.
Finally, aim for progress, not perfection. The rating bureaus realize that accidents are inevitable. That’s one reason your score is influenced more by several small or mid-size claims rather than one catastrophic claim. While accidents aren’t entirely avoidable, aim for as few as possible.
With dedication and commitment to processes that create a culture of safety, you can look forward to a lower Ex-mod. And of course, partnering with a carrier like ICW Group that provides resources and support around these efforts can help you take a pro-active approach.
