10 May What is an Experience Mod?

What is an experience mod?

Experience Modifier, commonly called an “e-mod”, is a factor developed by measuring the difference between the insured’s actual past experience and the expected or actual experience of the class. 

The e-mod represents either a credit or debit applied to the premium before discounts. 

If your company’s loss experience is more costly than the average company in your industry, the result is a debit e-mod or surcharge on premiums. 

If your company’s loss experience is less costly than the industry average, you will receive a credit e-mod, or discount, on your premium. 

How is an experience mod calculated?

The two major components used to determine your final e-mod rate are severity and frequency.

Severity measures the total amount of a work comp claim, and frequency estimates how often claims occur. Again, these are measured against other businesses with similar classifications and job duties.

The actual calculations for the e-mod rate are confusing, so let us try and simplify them. 

The rate itself is based upon your most recent three years of claims history, excluding the year that just ended.

If your workers’ compensation insurance were renewed on January 1, 2015, your experience modification rate would be based on the three years of work comp claims experience from January 1, 2011-January 1, 2014. 

So ultimately, your last three years of workers’ compensation claims affect your current workers’ compensation rate either negatively or positively.

What does the e-mod mean to my business?

In a word, Money. 

We have seen experience modification factors ranging over 2.5 on a large business. This means they are receiving a 150% debit. 

It is hard enough to compete in the business world, but competing with a large debit on your workers’ compensation insurance is like running a race with a 100-pound backpack. It puts the business owner at a considerable disadvantage.

Let’s say you are a business with a 2.50 experience modification factor, and you are competing against a company with a 0.90 modification factor. You are 160% behind your competitor before you even start.

If both companies’ manual premiums are $200,000 a year, one company pays $500,000 while the other pays $180,000. What can you do for $320,000?

How do I improve my e-mod?

Quite simply, have fewer and less expensive claims. 

The average Synergy Comp account can obtain a 29% reduction in experience mod within 4 years of implementing the SOS Business Plan.

We combine claims resolution, risk management, and loss prevention strategies to become the most effective workers’ compensation insurance carrier and workplace safety solutions available today. Contact us to learn more.