Effective January 2017, the method for calculating experience modifications (ex-mods) for all California employers will be changing. For future ex-mods, the calculation will be based primarily on the number of workers’ compensation claims, and there will be much less emphasis on the dollar amount of claims.
Since higher ex-mods equates to higher premium costs, it is in the best interest of all companies to reduce their ex-mod. Businesses should therefore focus on efforts to reduce the number of injured worker claims they have, because that will have a significant impact on their ex-mod and related workers’ compensation premium.
Ex-mods are a reflection or a “grade” of how your business compares to other similar businesses with workers’ compensation claims. The average grade for all businesses in California is 100. If you have more workers’ compensation claims than your peers, your ex-mod will be graded higher than 100. If you have fewer claims, your grade will be less than 100. Ex-mods over 100 equate to higher premiums. For example, a company with an ex-mod of 130 pays 30 percent higher in premiums than a similar company with an ex-mod of 100. A company with a 75 ex-mod pays 25 percent less in premium than a company with a 100. Reducing a company’s ex-mod can have a large effect on its ultimate workers’ compensation premium costs.
Prior to this change, a big part of the ex-mod was calculated based on the actual cost of the workers’ compensation claims. Under the CURRENT system:
• Although the number of claims has an impact on the size of the ex-mod, the actual dollar cost of individual claims had as much of an effect on the size of the ex-mod as the actual number of workers’ compensation claims.
• A company can have a number of small dollar claims and it will not have a significant impact on its ex-mod.
• However, if one or more of those claims is for a large dollar amount, it can drive the ex-mod to be much higher.
• Even a company that has only one or two claims could have a very high ex-mod simply because of the size of the claims.
Starting January 1, 2017, the focus will now be on reducing the number of claims. The Workers’ Compensation Insurance Rating Bureau (WCIRB), the entity that sets ex-mods for all California companies, has recognized that most companies have little or no control over the cost of claims. Claims are usually a reflection of the type of injury or illness, and it’s difficult for an employer to control the cost of a claim once an injury has occurred. Under the NEW system:
• Large claims will not have any more impact on ex-mods than smaller claims.
• The WCIRB has changed the system to calculate ex-mods based on the number of claims and removed much of the impact that large claims have on the ex-mod.
• The focus is now on reducing the number of claims.
• Fewer injuries mean better working conditions, happier workers and reduced costs to businesses.
There are other factors used to calculate the ex-mod, but essentially, the fewer claims a company has, the better its ex-mod will be. As an example, a company with a lot of small losses had an ex-mod of 100 under the current system. In the new system their ex-mod calculates to be 109. In another case, a company with fewer losses but one large loss has a current ex-mod of 133. With the revised system, its ex-mod projects to be 109, or 24 percent lower.
How can a business take advantage of the changes that are being made? First and foremost, find an insurance representative who understands how the new system works and what you can do to maximize it to your benefit. Since there are several calculations that are being made by the WCIRB and insurance carriers, having an agent who can make sure your company information is used correctly in calculating the ex-mod will be very important. Extensive safety training for workers to avoid injuries as well as process reviews and site inspections to help to identify exposures will reduce the number of reportable workers’ compensation incidents.
Western Growers is prepared to assist any members who are interested in preparing for the new system. Contact our insurance services team if you have any questions.