Kevin Ian Schmidt

Employers that on average have a yearly premium that meets or exceeds $3,000 will often be supplied with an Experience Modification Rating. Each year, your Experience Modification is calculated by the NCCI (National Council on Compensation). In most instances, your rating is calculated using the three past years of date supplied by your insurance company. So for example, your 2019 EMR would be calculated based upon all claims from 2018, 2017, and 2016.

If your yearly premium is $100,000 and your Experience Mod is 1.20, then your premium will increase by $20,000 for that year, making your annual premium $120,000. Conversely, if your rating is.80, then your premium will decrease by $20,000 for that year, making your annual premium $80,000. As you can see, your workers compensation insurance rate is greatly impacted by this rating. So, if you’re trying to compete for business, or remain profitable in a competitive market, an XMOD of 1.20 could put you $40,000 behind, meaning if you have a margin of 35%, you would need an additional $114,285 in sales to just offset this loss.

I will to attempt to explain the experience modification factor in layman’s terms. I’m not going to delve into the formula and its components but rather only those pieces that you have direct control over. I’ll touch on classifications, payrolls and losses.

Class Codes

Just like anything, without the proper foundation all things will crumble. This is definitely the case with your class code. If you have the wrong class code then you’ll have the wrong mod. As agents, we use the Scopes manual to give us class code descriptions and rules. You should ask to see the narrative for your specific code(s). Only then can you determine if you are properly classified. Some classifications allow for a division of payroll. In several states most of the codes allow for division of payroll. What I mean by this, if you fit into two (or more) codes, you can divide the payroll between them as long as you maintain separate payroll records. It would behoove you to do so, otherwise all of your payroll will go into the higher rated classification. Why pay more if you don’t have to?

Payroll

Payroll is another component that you control. Your payroll is your payroll. What you need to make sure of is that the auditor has assigned the proper payroll to each class code. Sounds rather simple doesn’t it? Don’t let if fool you. Did the auditor include overtime premium pay? He shouldn’t have. Is there division of payroll? Don’t rely on them to tell you about these things because they won’t.

Losses

For those of you who’ve had a bad experience with experience rating, you’re sure to know it’s the losses that were the primary culprit in your debit mod. Nothing affects your mod more so than the loss component. Do you even know what your losses are? Do you have any open claims? Do you have any losses that will be dropping off your next mod calculation? Are you picking up a bad year? Did your insurer recover any money through subrogation? Were any of your losses over-reserved? If there’s one thing to remember from this article, it is to stay on top of your losses.

The first $5,000 of each loss of time claim is counted at full value, and anything over that is discounted. This means that your Experience Mod is less affected by a large single claim than it is by multiple small claims.