Experience modification, commonly referred to as “e-mod,” is an important calculation in determining your worker’s compensation premium.
From IRMI, an experience modifier is a factor developed by measuring the difference between the insured's actual experience and the expected or actual experience of the class. This factor may be either a debit or credit and, therefore, will increase or decrease the standard premium in response to past loss experiences. When applied to the manual premium, the experience modification produces a premium that is more representative of the actual loss experience of an insured. An employer with average experience has a modifier of 1.0 and would pay the manual premium. Employers with poorer loss experience would have modifiers greater than 1.00 and would pay more than the manual premium. Those with good experience would have modifiers below 1.00 and pay less than manual premium.
In some industries, it is frequent practice to provide your e-Mod factor before being awarded a job. If your e-Mod factor is too high, you may lose out on a job opportunity.
How is e-Mod calculated?
In the simplest explanation, it is:
Actual losses/Expected losses=Experience Modification Factor for the previous 2nd, 3rd and 4th policy periods compared against industry standards for a similar risk.
If the employer’s experience mod is 1.00 then they are average in claims cost loss experience compared to other businesses of comparable size and industry. This also means that there is no debit/credit to the premium because of this e-Mod. Less than 1.00 is better than average and warrants a credit on your premium. Higher than 1.00 is worse than average.
Businesses are compared to other similar businesses. For instance, a company offering clerical services would be compared to other companies offering clerical services. It would not be compared to construction companies.
E-mods are based on claims costs for a prior three-year period excluding the most recent policy period that has not yet been audited by the insurance company. The formula gives higher weight to frequency than the severity of the injury. For instance, six claims totaling $100,000 over three years has a greater impact on e-mod than one claim totaling $100,000 in three years.
Claims with $0 costs are not included in the e-mod calculation.
How can I lower my e-mod rating?
A great safety program and loss prevention procedures can lower your e-mod and are imperative to effectively managing worker’s compensation costs. The lower your e-mod, the higher the savings on your worker’s compensation policy. The higher your e-mod the more you will pay in worker’s compensation.
Having a good understanding of an e-mod can make a great deal of difference in your worker’s compensation costs. If you have questions or would like to learn more about the services, we offer our workers’ compensation to clients please contact Julie Yoder.
Blue Ridge Risk Partners is a top 75 independent insurance agency in the United States. With 21 offices throughout Maryland, Pennsylvania, and West Virginia and access to hundreds of carriers, we are able to meet your unique insurance needs.