How An Ex-Mod Projection Can Help Control Work Comp Costs

Are your workers’ compensation insurance costs higher than you expected? Since your ex-mod plays a crucial role in work comp costs, an ex-mod projection is helpful for understanding and controlling these costs.

How Your Ex-Mod Impacts Your Work Comp Costs

Your company’s experience modification rate (commonly called the ex-mod) shows how your workers’ comp claim history compares to that of similar businesses. Insurers use it to either raise or lower workers’ compensation insurance premiums.

Injury rates differ by industry. For example, an accounting firm will probably have far fewer injuries than a logging company. In addition, large companies typically have a higher number of injuries than small companies because they have more employees and therefore have more opportunities for injuries.

Companies of the same size and in the same industry should – in theory – have similar injury rates. In reality, this is not always the case. Company culture and safety practices have a big impact on injury rates. A restaurant with 30 employees may have far more injuries than another restaurant with 30 employees located just down the street. The severity of injuries also varies. The way in which businesses promote safety, train employees, respond to injuries and manage workers’ compensation claims can all contribute to a company’s claim frequency and severity.

The ex-mod accounts for these variations. To describe the formula simply, your ex-mod is your actual workers’ comp losses divided by expected losses based on what’s typical for similar companies.

If your actual losses are higher than the average of similar companies in your industry, your ex-mod will be greater than 1.0. If your losses are lower than the average, your ex-mod will be less than 1.0. Your insurer arrives at a modified rate that reflects your claim history by multiplying your ex-mod by the standard workers’ comp rate for a company of your size and industry.

For example, let’s say your annual workers’ comp premium is $10,000 before your ex-mod is applied. If you have an ex-mod of 1.3 (which reflects higher than average losses), your modified premium is $13,000. If you have an ex-mod of 0.8 (which reflects lower than average losses), your modified premium is $8,000. For this reason, your ex-mod has a big impact on your actual workers’ compensation insurance premium costs.

How an Ex-Mod Projection Works

An ex-mod projection looks at how your ex-mod is likely to change in the future. There are three things that can influence your ex-mod:

• Your loss history changes. Your ex-mod is typically based on the past three years. Your ex-mod will change if your losses have increased or decreased significantly during this time.
• You’re a new company that establishes loss history. New companies don’t have a loss history yet. Once your company has employed workers for long enough to have a loss history, your insurer will calculate your ex-mod and adjust your workers’ comp premiums accordingly.
• The ex-mod calculation changes. Small changes to the way insurers calculate actual and expected losses could have an impact on your ex-mod and, as a result, your workers’ comp premiums.

Using the Ex-Mod Projection to Reduce Costs

An ex-mod projection will help you plan for future costs while also enabling you to take proactive steps to keep those costs under control. A few things to do include:

• Improving workplace safety. If your losses are higher than expected or have been increasing, improvements to your workplace safety practices may control your future work comp costs. For example, you may need to introduce a new worker training program or invest in personal protective equipment or additional engineering controls to keep workers safe. By identifying the leading drivers of workers’ comp losses, you’ll determine where to focus your efforts.
• Adjusting your workers’ comp claims strategy. You may be able to keep claims costs down by implementing new measures, such as a return-to-work program or a nurse triage program. Even the way you handle claims may prevent escalation and higher costs, as this will ensure workers feel that you are taking care of them.
• Discussing your options with an insurance broker. A broker who is familiar with workers’ compensation options and strategies may be able to provide additional advice. For example, it might make sense to use a captive work comp arrangement, or a high deductible program instead of a traditional insurance arrangement.

Do you need help managing your work comp costs and leveraging an ex-mod projection? Heffernan Insurance Brokers can help. Learn more.