For every industry involved with workers’ comp—but especially for those in more accident-prone industries such as construction—experience mods can make or break how much you pay for your premiums. But what exactly is an experience mod? Why is it so important? And most importantly, how is it determined?

It’s time to remove the enigma that is the experience mod and give you some much needed clarity on these often cost-driving factors in your workers’ comp program. In this thought paper, we’ll answer the following questions:

What is an experience mod? | How is an experience mod calculated? | How can I control my experience mod?

  1. Experience Rating Modification Basics
    1. What is it?
      1. An experience modification, or experience mod, is sometimes referred to as an e-mod or ex mod. The experience mod is a highly important factor in determining how much your business pays for workers’ comp coverage.
      2. The National Council on Compensation Insurance, Inc. (NCCI) assigns experience modification ratings based on how your company’s safety and loss prevention metrics compared to companies of similar classification.
    2. Why is it important?
      1. The experience mod method tailors the cost of workers’ comp insurance to the individual characteristics of the employer group. Your workers’ comp premiums are based on your experience mod, therefore you are incentivized to manage expenses through measurable cost-saving programs focused on safety.
      2. Your premiums can decrease based on improvements made in loss prevention and occupational health and safety—ultimately saving you money.
  1. Calculating Your Current Experience Mod
    1. Your Track Record
      1. Previous Losses & Audited Payroll
        • Your experience mod is calculated by comparing your individual experience with respect to safety and loss prevention, with that of the average employer in the same classification. This is usually calculated using a timeline of the previous three years. With regard to losses, your business’s previous losses will be directly compared to those that are expected in your industry. Your business will be compared to those of a similar size through audited payroll for the most accurate rating.
      2. Important Components
        1. Frequency vs. Severity
          • When calculating an experience mod rating frequency and severity and taken into consideration. The cost of a workplace incident is subjective to many circumstantial factors such as the severity and number of dependents left. The frequency of workplace incidents is a more objectively measurable means to obtain an experience mod rating. A split rating method is used to consider the frequency and the severity. Each state is responsible for approving the split point of individual ratable losses as a part of rate or loss cost filing. Under this split rating method, primary losses have a greater weight than excess, meaning primary losses have a larger impact on the experience mod rating. Primary losses are the amount of any ratable individual loss up to the split point. Any amount after this is known as the excess loss, which reflects the severity.
        2. Weight of Losses
          • Weight loss classification is assigned to primary and excess loss by reviewing the individual employer’s loss history. This is done because weight of losses varies by the size of the employer. A large employer’s rating calculation is largely influenced by its own experience. Whereas a smaller employer may go many years without experiencing an incident, then incur a claim where the total cost wildly exceeds the total premium paid. Due to this, an employer with five injuries incurred will receive a higher rating than an employer with one injury, even if the total claim cost is the same.
  • Claim Type
    • Depending on the type of claim, the impact on the experience mod rating will vary. Medical-only claims have a smaller impact on the rating because many states have approved the ERA, which limits the amount of these claims when calculating the experience mod. This new formula lowers incentives for employers to pay medical only claims out-of-pocket.
  • Controlling Your Experience Mod Moving Forward
    1. Create and Maintain a Solid Safety Program
      • The most impactful way to control your experience mod is through the creation and maintenance of a solid safety program. By reducing workplace incidents, you will effectively reduce the number of losses and improve your experience mod rating. What are you doing today to encourage safety in your work environment? Think about your current safety structure – is there one in place? If so, is it having an impact on reducing the number of incidents year-over-year?
    2. Communicate Importance of Safety Processes and Protocols to Employees
      • If you have a safety protocol in place, it’s only effective if your employees know about the procedures, and fully understand how to follow them. The most well laid safety procedures are only effective if your employees can, and do, follow them. Employee education is vital in maintaining a safe work environment and preventing incidents which lead to loss. What are you currently doing to distribute safety protocols? Are you current employees and new hires educated and up-to-date on safety processes?
    3. Choose a Workers’ Comp Partner with a Proven Record of Improving Safety Outcomes
      • The bottom line – the way to effectively control your experience mod and your budget is through future prevention and current reduction of workplace incidents. This can seem like a daunting task to take on, especially when you already have so much on your plate. That’s why it’s vital to choose a workers’ comp partner who is up for the task with a proven record of improving safety outcomes.

Take control of your experience mod through proven and effective safety measures with a partner who understands the needs of your industry. Partner with ConstructaComp today.

Written by: Loren Traylor, Director of Program Development at THE FUND

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