Experience modifiers: the good, the bad and the average

By Shelly Horelica, Senior Marketing Specialist

By Shelly Horelica, Senior Marketing Specialist

Most people don’t often think of their workers’ compensation policy until they pay their premium or file a claim. You may be surprised to learn that you can take small steps during the year to save money when you renew your policy. Your experience modifier (e-mod) is one of the keys.

 What’s an e-mod?

An experience modifier is a factor used in the calculation of your insurance premium.  It reflects your loss experience. To qualify, a business must have an average workers’ compensation premium of $5,000 during the last two or more years of coverage, or develop at least $10,000 premium during the last year. The experience modifier formula is complicated, but in its simplest form, it is actual losses/expected losses.  If your business’ actual losses are lower than expected for your industry, you should receive a favorable experience modifier.

How do losses impact e-mods?

The e-mod formula puts a cap on larger losses. It also gives greater weight to accident frequency rather than the severity of a loss. Claims with $0 losses are not considered in the actual calculation and do not affect an employer’s e-mod.

E-mods: the good, the bad and the average

E-mods come in all sizes. An e-mod of 1.00 is considered average, and it will not positively or negatively affect premium. An e-mod of less than 1.00 is a credit e-mod, indicating a risk with better-than-average experience. An e-mod over 1.00 is a debit e-mod, indicating a risk with worse-than-average experience.. Let’s look at how this could impact premium.

Company Base premium E-mod *Adjusted premium
A $43,925 1.00 $43,925
B $43,925 .70 $30,747
C $43,925 2.00 $87,850

*Prior to underwriter pricing considerations

In the example above, Company C gets the same amount of coverage as the other companies, but may pay significantly more because it has a debit e-mod. In our next installment, I will give some tips for reducing your e-mod and, in turn, your premium.

About the author

Shelly Horelica is a Senior Marketing Specialist.  Shelly has been working with Texas Mutual insurance agents for 19 years.  She also works closely with the marketing representatives across the state.  Shelly is a frequent presenter at our statewide workers’ comp workshops and is a certified insurance counselor with 25 years’ experience in workers’ compensation insurance.

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