The Rise in California Cumulative Trauma Workers’ Compensation ClaimsAre your workers’ compensation insurance costs higher than you expected? Since your ex-mod plays a crucial role in work comp costs, an ex-mod projection is helpful for understanding and controlling these costs.
Key Takeaways
- Your experience modification rate (ex-mod) compares your actual workers’ comp losses to what’s typical for similar businesses, then adjusts your premium up or down accordingly.
- An ex-mod above 1.0 means higher-than-average losses and a higher premium; below 1.0 means lower-than-average losses and a discount.
- Three things move your ex-mod over time: changes in your loss history, a new company establishing loss history for the first time, and periodic changes to the calculation itself.
- An ex-mod projection lets you anticipate premium changes before they happen, rather than being surprised at renewal.
- Improving workplace safety, adjusting your claims-handling strategy, and reviewing alternative funding options with a broker are the three main levers for controlling a rising ex-mod.
- Because the ex-mod formula is based on rolling multi-year loss history, a single bad year doesn’t just affect one renewal — it can influence your premium for several years afterward.
How Your Ex-Mod Impacts Your Work Comp Costs
Your company’s experience modification rate (commonly called the ex-mod) shows how your workers’ comp claim history compares to that of similar businesses. Insurers use it to either raise or lower workers’ compensation insurance premiums.
Injury rates differ by industry. For example, an accounting firm will probably have far fewer injuries than a logging company. In addition, large companies typically have a higher number of injuries than small companies because they have more employees and therefore have more opportunities for injuries.
Companies of the same size and in the same industry should – in theory – have similar injury rates. In reality, this is not always the case. Company culture and safety practices have a big impact on injury rates. In our experience, this is where companies are most often surprised — two businesses that look identical on paper can have meaningfully different ex-mods purely because of how consistently (or inconsistently) they’ve handled claims and safety training. A restaurant with 30 employees may have far more injuries than another restaurant with 30 employees located just down the street. The severity of injuries also varies. The way in which businesses promote safety, train employees, respond to injuries and manage workers’ compensation claims can all contribute to a company’s claim frequency and severity.
The ex-mod accounts for these variations. To describe the formula simply, your ex-mod is your actual workers’ comp losses divided by expected losses based on what’s typical for similar companies.
If your actual losses are higher than the average of similar companies in your industry, your ex-mod will be greater than 1.0. If your losses are lower than the average, your ex-mod will be less than 1.0. Your insurer arrives at a modified rate that reflects your claim history by multiplying your ex-mod by the standard workers’ comp rate for a company of your size and industry.
For example, let’s say your annual workers’ comp premium is $10,000 before your ex-mod is applied. If you have an ex-mod of 1.3 (which reflects higher than average losses), your modified premium is $13,000. If you have an ex-mod of 0.8 (which reflects lower than average losses), your modified premium is $8,000. For this reason, your ex-mod has a big impact on your actual workers’ compensation insurance premium costs. For more on why this coverage matters in the first place, see our post on work comp for small businesses.
How an Ex-Mod Projection Works
An ex-mod projection looks at how your ex-mod is likely to change in the future. There are three things that can influence your ex-mod:
- Your loss history changes. Your ex-mod is typically based on the past three years. Your ex-mod will change if your losses have increased or decreased significantly during this time.
- You’re a new company that establishes loss history. New companies don’t have a loss history yet. Once your company has employed workers for long enough to have a loss history, your insurer will calculate your ex-mod and adjust your workers’ comp premiums accordingly.
- The ex-mod calculation changes. Small changes to the way insurers calculate actual and expected losses could have an impact on your ex-mod and, as a result, your workers’ comp premiums.
Using the Ex-Mod Projection to Reduce Costs
An ex-mod projection will help you plan for future costs while also enabling you to take proactive steps to keep those costs under control. A few things to do include:
- Improving workplace safety. If your losses are higher than expected or have been increasing, improvements to your workplace safety practices may control your future work comp costs. For example, you may need to introduce a new worker training program or invest in personal protective equipment or additional engineering controls to keep workers safe. By identifying the leading drivers of workers’ comp losses, you’ll determine where to focus your efforts.
- Adjusting your workers’ comp claims strategy. You may be able to keep claims costs down by implementing new measures, such as a return-to-work program or a nurse triage program. Even the way you handle claims may prevent escalation and higher costs, as this will ensure workers feel that you are taking care of them.
- Discussing your options with an insurance broker. A broker who is familiar with workers’ compensation options and strategies may be able to provide additional advice. For example, it might make sense to use a captive work comp arrangement, or a high deductible program instead of a traditional insurance arrangement. We typically recommend running an ex-mod projection annually, well before renewal, so there’s still time to act on the results — whether that means tightening safety practices or exploring an alternative funding arrangement.
How Long Does a Bad Ex-Mod Year Follow You?
Because most states calculate your ex-mod using a rolling three-year loss history (typically the three years prior to your most recently expired policy period), a single high-loss year doesn’t just affect one renewal — it can influence your premium across two or three future policy periods before it rolls off the calculation. This is one of the most common surprises we see when a company doesn’t request an ex-mod projection.
A single bad year shouldn’t quietly cost you for the next three. If you haven’t run an ex-mod projection recently, you may be flying blind into your next renewal — and missing the window to make changes that actually move the number.
