For most companies, Workers Compensations Insurance is the largest expense in their overall Insurance Budget. Most feel that there is nothing they can do to lower their Work Comp premium short of letting employees go. They rely on the old, tired expression, “it is what it is”.
A big factor in calculating the final price of a Work Comp policy is the Experience Modification Factor, also know as “The Mod” or “The Ex-Mod”. In Texas, most companies go through a process called “experience rating”. Experience rating is a mathematical analysis of a company’s payroll and losses which result in a number called the “Experience Modification Factor”, the higher your mod, the more premiums you pay, and of course, the lower your mod, the less premiums you pay. For example, if a company has a mod of 1.20, in calculating their final premium a 20% additional charge will be added. Conversely, a company with a mod of .80, in calculating their final premium, they will see a 20% reduction.
While most of us would rather not get involved with the math behind the experience rating formula, it does contain some important concepts that business owners and managers should understand.
The basic math in calculating your mod is taking your actual losses and comparing them to your expected losses. The more your actual losses are compared to your expected losses, the higher your mod.
Actual losses are the claims your company actually files with insurance company. Expected losses are determined by statistics reported by insurance companies to an organization gathering workplace injury data. This injury data is then used to determine what a company is expected to pay in employee injury claims for a particular class of employee. Expected losses are obviously higher for construction workers than they are for office workers.
If your mod is 1.0, this means your actual losses are the same as your expected losses. While some may feel this is the perfect score, it in fact means that your company is average. It is like getting a “C’ on your report card or shooting par on the golf course. You may be pretty happy with this but it is still only average.
Just like improving your report card from a “C” to an “A” or your golf score from par to under par, to improve your mod from 1.0 to something lower, you’ll have to take some additional steps. Analyzing your claims to determine what is causing your losses is a great first step. Once you understand what is happening, then you can take additional steps to improve your situation through loss control and loss prevention activities.
Texas Associates Insurors has the professionals with the unique tools to help you understand your Work Comp Experience Mod and put you on the road to improving it. Contact us now to get started.