Learn more about what the experience modification measures and how it effects the cost of workers comp insurance.

The key to calculating a workers’ compensation premium is the experience modification factor, also known as the x-mod.
Understanding your company’s exmod and the data used to produce it, helps you identify ways to minimize your workers’ compensation premium.
The exmod factor is a number that represents whether a company’s workers’ compensation losses are better or worse than average.
The exmod works as a credit or debit that is applied to your workers’ compensation premium.
An exmod factor greater than 1.00 is a debit mod, which means that your losses are worse than expected and a surcharge will be added to your premium.
An exmod factor less than 1.00 is a credit mod, which means losses are better than expected, resulting in a discounted premium.
Numerous factors affect whether a company is experience rated.
In general, very small companies may not be eligible for a published ex-mod.
The mathematical determination is based on the sum of a company’s payroll by classification code multiplied by the pure premium rate for that code.
If this total exceeds the state’s premium threshold, a number that is updated each year, then the company is experience rated.
In California, the Workers’ Compensation Insurance Rating Bureau or the WCIRB, calculates employers’ experience modification factors.
The WCIRB is a private, nonprofit association comprised of the companies licensed to transact workers’ compensation insurance in the state.
Outside of California, most other states use the National Council on Compensation Insurance or the NCCI to perform a similar function.
However, the following states also have their own rating bureaus: Delaware, Indiana, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Pennsylvania, Texas and Wisconsin.
The process of calculating the experience modification factor is complex, but the underlying theory and purpose of the formula is straightforward.
Your company’s actual losses are compared to its expected losses by industry type.
The formula incorporates factors that account for company size, unexpected large losses and the difference between loss frequency and loss severity to achieve a balance between fairness and accountability.
The exmod is calculated using loss and payroll data for an experience rating period. The experience rating period typically includes data for three policy years, excluding the most recently completed year.
For example, for a mod factor calculated on Jan. 1, 2020, data would be used for the Jan. 1, 2016 to Jan. 1 2019 policy terms. The data for the Jan. 1, 2019-2020 policy term would be excluded.
Three years worth of data is used to provide a more accurate reflection of the losses, smoothing out the impact of any exceptionally bad or good year for losses.
Check out our videos The Exmod formula and Tips for Controlling your ExMod for deeper explanations on how the actual loss data is separated into primary and excess pools and various tips to help control your ExMod and bring down your workers comp premiums.
Please contact us with further questions on this or any other risk management topic. We will see you again soon!