(DISCLAIMER: This is for those of you who have never heard of an ex-mod or don’t know how it affects you. If you’re already familiar with it, this will be review.)
Alright, let’s get right to it:
Your business’ Ex-Mod (or Experience Modification Rate) is a number given to you by the Workers’ Compensation Insurance Rating Bureau or WCIRB that factors into your total Workers’ Compensation insurance cost. Essentially, the more frequent and severe your workers’ comp claims are, the higher your ex-mod will be, which in turn will cause you to pay more for your insurance.
That’s the simple version, but let’s dig in. shall we?
Your ex-mod isn’t just a magical number that some guy at the WCIRB decided to give you because he feels like you deserve it. It’s actually a result of a fairly involved mathematical equation. You put your company’s information in, and your ex-mod comes out.
The simplest way to understand this equation is that it’s your Actual Losses (over the last four years excluding the most recent year) divided by your Expected Losses (over that same time frame).
This means that if you don’t have as many or as severe of claims as the state expects you to, you get an ex-mod that’s below 1.00, and you get a discount on your insurance premiums.
If you have just as much claims cost as they would expect for a company of your size and nature, then you end up with a 1.00 ex-mod, and you’ll pay the normal rates.
If your claims cost exceeds what they expected for you to have, you end up with a number from 1.00 to 9.99
But it’s just a number, right?
Well, it’s certainly a number, but the “yikes” comes from how exactly that number gets used. It’s a multiplier. Any insurance carrier you work with is legally required to take the premium that you would normally pay and multiply it by your ex-mod number.
How about an example?
ABC Co. starts out with a 1.00 ex-mod and pays $50,000 a year for their workers’ comp policy. After 5 years without a single claim, they get their ex-mod down to a 0.62. If everything else in their company has stayed the same, they will only have to pay $31,000 for their workers’ comp this year. They just saved $19,000!
But then, it happens. In the span of 3 months, 3 sizeable claims come in. After the cost of a couple surgeries and the time off work involved there and the lawyer fees from the case against the disgruntled ex-employee who decided to make up an injury, ABC Co. has more claims cost than they ever could have expected. In one year, the ex-mod shoots up from a 0.62 to a 1.84, and now they have to figure out how they are going to pay for their insurance policy that is going to cost $92,000.
That’s the power of the experience modification rate, and that is exactly why we are so adamant about helping businesses get this number under control and keeping it there. It is absolutely crucial that you have a plan for managing your claims costs, and we would love to be a part of that solution.