The experience modification factor (Ex-Mod) is a critical component in determining your workers’ compensation insurance premiums. It is designed to compare your company’s actual losses to the expected losses of similar businesses in your industry. A lower Ex-Mod can result in reduced premiums, while a higher Ex-Mod can lead to increased costs.
How the Ex-Mod is Calculated
The Ex-Mod calculation is based on a company’s loss and payroll data over a designated experience rating period, typically spanning three policy years, excluding the most recent completed year. For example, an Ex-Mod calculated on January 1, 2025, would use data from January 1, 2021, to January 1, 2024, while excluding data from 2024-2025.
Expected loss rates are determined by industry classification codes and are updated annually by organizations such as the Workers’ Compensation Insurance Rating Bureau (WCIRB) and the National Council on Compensation Insurance (NCCI). These rates help assess the anticipated cost of claims per $100 of payroll.
Key Components of the Ex-Mod Calculation
- Primary Losses – The first $7,000 of each claim (prior to 2017) is fully included in the calculation to measure claim frequency. Since 2017, the threshold has changed, making the calculation more complex.
- Excess Losses – Claim amounts exceeding the primary loss threshold are capped at varying levels annually to prevent a single large claim from disproportionately impacting the Ex-Mod.
- Expected Losses – These are determined using payroll data and expected loss rates based on industry classification.
- Claim Frequency vs. Severity – Frequent smaller claims have a greater impact on the Ex-Mod than a single large claim, as they indicate ongoing workplace safety concerns.
Why the Ex-Mod Matters
A high Ex-Mod can significantly increase workers’ compensation premiums, while a low Ex-Mod can help reduce costs. Businesses should focus on risk management strategies, such as safety programs and employee training, to minimize workplace injuries and keep claims low.
How to Improve Your Ex-Mod
- Implement a robust workplace safety program.
- Address and correct potential hazards promptly.
- Offer safety training for employees.
- Develop a return-to-work program to minimize lost workdays.
- Review claims regularly to ensure accurate reporting and closure.
Understanding and managing your Ex-Mod is essential for controlling workers’ compensation costs. If you have questions or need guidance on improving your Ex-Mod, contact us today!
