Welcome to Work Comp Wednesdays! Insurance People is the industry-leader in North Carolina workers’ compensation insurance. Each week, our team takes a frequently asked question and expands on the issue for our clients, prospective clients, and community members to better understand the confusing nature of Work Comp.
Experience rating is a mandatory process that modifies the published rates for workers’ compensation coverage based on a comparison of your past losses to your industry’s average losses. Usually three years of loss experience are used to calculate the experience modifier (Ex Mod).
An Ex Mod below 1.00 means your recent work comp claims were below industry average and therefore your premium will be less than the average employer (issued credit). An Ex Mod above 1.00 means your recent work comp claims were more severe than your industry peers and therefore will be paying increased premiums for your organization (issued debit). An Ex Mod equal to 1.00 is the average of your industry.
Experience Modification Effect:
The Experience Modification Effect is the impact claims leave on a workers’ compensation premium. The Ex Mod Effect’s impact can vary depending on the size of the organization, hazard level and claims experience. Let us take a deeper look:
Example 1 – 1.30 Ex Mod (Debit)
Company A – $10,000 Work Comp Premium x 1.30 Ex Mod = $13,000 Modified Work Comp Premium
Company B – $50,000 Work Comp Premium x 1.30 Ex Mod = $65,000 Modified Work Comp Premium
Example 2 – 0.70 Ex Mod (Credit)
Company A – $10,000 Work Comp Premium x 0.70 Ex Mod = $7,000 Modified Work Comp Premium
Company B – $50,000 Work Comp Premium x 0.70 Ex Mod = $35,000 Modified Work Comp Premium
As you can see above, The Ex Mod Effect is different depending on the size of the initial Work Comp Premium. The bigger a company’s initial work comp premium (payroll and industry hazard level), the larger the variance of The Ex Mod Effect. Companies that encourage safety are more likely to receive a credit on their workers compensation account. For more information on the Experience Mod and The Experience Modification Effect, please contact one of our risk advisors!