Experience modifiers: the good, the bad and the average
January 14, 2014 Leave a comment
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|
*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.