Employees who are injured on the job or get certain work-related illnesses are generally covered by Workers’ Compensation insurance, which is mandated in nearly every state. Workers’ Comp pays for medical bills, rehabilitation costs, a portion of lost wages, and/or even partial or permanent physical impairment.
Premiums for Workers’ Comp insurance are calculated according to this formula:
Payroll (per $100) Class Code Rate Experience Modifier (if applicable) + State Taxes & Fees = Premium
The basis for your premium is your payroll. For each $100 dollars of your payroll, there is a specific rate, which is determined by the classification codes of your employees, based upon the specific type of work they perform (clerical, sales, roofer, etc.). Your experience modifier, referred to as your Ex-Mod, is a numeric representation of your company’s claim experience. In most states, the National Council on Compensation Insurance (NCCI) determines the classification rates and Ex-Mods. In California, the Workers’ Compensation Insurance Rating Bureau of California determines classification rates and Ex-Mods.
How Your Mod Is Calculated and How It Affects Your Premium
In order to predict the risk of future claims, the Ex-Mod is used to help calculate your premium by comparing your company’s claims history to similar companies in your industry. If you are a roofer in California, for example, your Workers’ Compensation claims results are compared to those of other roofers in the state. The Ex-Mod is calculated using a formula that considers both the company’s actual losses and the expected losses for the industry as a whole.
The most common Ex-Mod starting point is 1.0. If your company has an Ex-Mod of 0.85, your claims history is better than the average 1.0, which will positively impact your premium. If your mod is 1.25, your company has had more claims than other similar employers in your state within your industry, which will adversely impact your premium.
If your company payroll doesn’t meet the minimum for Ex-Mod calculation, you will be assigned an Ex-Mod of 1.0 until such time as it does. The calculation includes your payroll and claims history for the past three years, excluding the current policy term.
Companies should actively manage their Workers’ Compensation claims in order to keep their Ex-Mod low. This includes having robust safety programs, return-to-work programs, and other strategies in place to help mitigate and reduce the potential for costly claims. Ask your insurance agent for assistance or references in developing these programs for your company.