An employers’ workers’ compensation premiums are calculated using complicated formulas that take into account a range of factors. Some factors, like where employees are located, may be beyond the employer’s control. But the experience modifier, or ex-mod, is a factor that employers can, with dedication, bring under control.
Insurers begin their policy pricing process by comparing the employer against the average loss profile of the employer’s industry. In simplified terms, insurers use the employer’s unique experience modifier to adjust the employer’s premium relative to the industry average. The lower the employer’s ex-mod, the better.
How is an employer’s ex-mod calculated?
An employer’s ex-mod is determined on a state-by-state basis by independent agencies. In California the ex-mod is generated for every employer by the California Workers’ Compensation Insurance Rating Bureau, or WCIRB. The rating bureau calculates the employer’s ex-mod using data from the three-year window prior to the previous calendar year. In other words, in 2019 an employer’s relevant ex-mod period was 2015 to 2017. As time goes on, the window shifts and the oldest year is dropped out of the calculation.
Here’s a simplified illustration of how the process might look:
- In year zero, two businesses, A Corp. and B Corp., have both been flawlessly average in their loss generation for many years. The ex-mod for both businesses is 100%.
- In the four years following year zero, A Corp. had numerous safety incidents and filed many workers’ compensation claims. Its ex-mod window has moved to encompass those bad years, and as a result the company’s ex-mod has gone up to 150%, meaning it will pay fifty percent more in premiums than it did in year zero.
- Over the same period, B Corp. has maintained a better-than-average safety record, with significantly lower losses than its industry average. As a result, it has earned an ex-mod of 75%.
Lightening the ex-mod burden starts today
In this scenario, A Corp. has a problem. Over a four-year period, it accumulated a loss record that makes workers’ compensation insurance significantly more expensive. Unfortunately, there is nothing it can do to erase the high losses in years one through four.
For A Corp., the solution is to get proactive about risk management, so that as the ex-mod window moves it begins to capture years with better results. Tackling the problem should begin today, with steps like these:
- A comprehensive workplace safety review, including inspections of physical workspaces and processes.
- Adoption of employee training programs.
- Working with a claims advocate who can help the employer take control of claims to avoid some of the worst loss-generating mistakes, like needlessly sending injured employees to out-of-network hospitals.
- Starting the long-term process of fostering a strong safety culture.
Employers must bear in mind that these efforts will only be reflected in the ex-mod as the relevant window begins to account for improved claims performance. This is a process of years. Of course, the benefits of improving risk management across a business go well beyond lowering premiums: safer and healthier employees tend to stay longer with their employers and suffer less downtime.
Gunnin Insurance can get you started
At Gunnin Insurance we often work with businesses that have struggled to get their workers’ compensation costs under control. Especially in a difficult market like California, taking control of a high ex-mod takes expertise, planning, and dedication. Let us help your business get there. Give Gunnin a call today.