Although workers’ compensation may seem complicated, only two factors affect your workers’ compensation costs: your employees’ job classifications and your experience modification factor (ex mod).

Keeping your ex-mod low will can save you big workers’ comp dollars.
You can’t change your employees’ job classifications. If an employee performs the duties of a roofer, then your insurer will classify him/her as a roofer. But you do have control over the other variable that affects your workers’ compensation costs: your experience modification factor, often referred to as an ex-mod.
Stated simply, an ex-mod is a multiplier that relates to your claims experience. By multiplying the base rate for the applicable occupational class times your ex-mod, an insurer can reward or penalize you for your claims experience.
In most states, your premiums must exceed a certain minimum amount for the ex-mod to apply. If you do not pay enough in premiums, your organization will have a “minimum premium policy,” in which ex-mods do not apply.
Insurance companies send information on employers’ premiums and losses to the state’s rating bureau. The rating bureau then calculates ex-mods based on the employer’s paid claims and incurred losses for the “experience period,” generally the three years prior to the last policy renewal date.
How to calculate your ex-mod (expressed as a percentage): Take your total actual losses for this period and divide by the total expected losses, or average losses by $100 of payroll per job classification. An employer with actual losses of $253,563 and expected losses of $352,051 would calculate the experience modification as follows:
253,563 / 352,051 = 72%
However, it’s not as simple as all that. Not all losses are weighted equally. And rating bureaus use “weighting values” and “ballast values” to arrive at ex-mods that more accurately predict your company’s losses.
Here is the actual formula for calculating an experience modification factor:
What do these terms mean?
- “Primary losses” are the first $5,000 of any loss; “excess losses” are all loss amounts over $5,000. Losses up to $5,000 are included in full. Losses in excess of $5,000 are included on a discounted basis. In practical terms, this means that smaller losses have a bigger relative impact on your ex-mod than larger ones do.
- The “ballast value” and “weighting value” attempt to correct for the size of the risk. In statistics, the larger the pool sampled, the more accurate the sample is. Calculating ex-mods works in the same way — the larger the payroll base, the more accurately you will be able to predict your losses.
The resulting experience modification factor is expressed in a number that generally ranges from .75 to 1.75. An experience modification of 1.00 indicates your losses reached the expected dollar amount. A number higher than 1.00 indicates that your risk of loss is greater than average, while an ex-mod of less than 1.00 indicates your risk is better than average. If you meet the minimum premium levels, you can control your workers’ compensation costs by keeping your ex-mod low.
Keeping Ex-Mods Low
Keeping ex-mods low requires controlling workers’ compensation claims. Focus on controlling the smaller, more frequent losses —they will impact your ex-mods more than less frequent, larger losses.
Next, you’ll want to periodically review your payroll and claims information for accuracy. Make sure your payroll data is accurate and your ex-mod calculations include data from the proper years. And keep tabs on loss reserves — unused loss reserves affect your experience modification.
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