Though there are several factors that account for a company’s total workers’ comp costs, the driving force behind the premium is the perception of risk an insurer will be taking on when covering your company. This is called the experience modification factor, or the ex mod rate calculation. Without properly managing the ex mod factor, you can find your company spending thousands more than necessary on workers’ comp insurance.
Actual vs Expected Costs
For insurance purposes, the ex mod has the same influence a credit report does when heading to the bank for a loan. The exmod shows the company’s history with regard to actual incurred losses and uses the data in comparison against similar businesses in the same industry. The higher the number of injuries claimed, the higher the ex mod will be and the greater the risk. A low number signifies less risk according to a history with fewer injuries.
The calculation is made according to expected losses for the policy term, taken from both industry averages and your companies history. However, if your company performs better and lowers the number of losses, it can reduce your premium costs going forward.
Change the Factor
The goal for a company should be to as close to the minimum ex mod factor as possible to score the best rates on workers’ comp coverage. Reducing the costs of losses in both severity and frequency will help to lower the ex mod calculation.