The ex. mod.

One of our specialties is our thorough understanding of the experience modification factor and how to impact it. The experience modification factor has a dramatic effect on an employer's workers compensation premiums.

The ex. mod. and commercial insurance

What It Is

California's Workers Compensation Experience Rating Plan, approved by the Department of Insurance, and overseen by the Workers Compensation Experience Rating Bureau (WCIRB), tailors the cost of insurance to the performance of the individual employer. It compares the employer's past loss record to all members of that same industry classification. The Workers Compensation Experience "cost" is then adjusted to arrive at the fair and equitable premium necessary to provide coverage for that employer.

This system allows the employer the opportunity to control insurance costs through measurable loss control programs. The potential premium savings provide the incentive to establish and maintain meaningful safety programs.

Most employers and many people in the insurance industry do not understand how the ex. mod. works. For a better understanding of the mod., please review the following information and view the interactive ex. mod. worksheet, which determines workers comp. insurance premiums.

View the interactive worksheet below.

Why Experience Rating

Insurance is based on the theory of spreading or sharing of risk by members of a group who are likely to experience losses. The losses of an entire group can be predicted with a fair degree of accuracy. However, it is not possible to determine which group member will actually have the lass. Because of this, the cost of insurance is apportioned to each member on the basis of average cost for the group. It is assumed that each member's own experience will approximate the average.

In reality, while there must be a method for allocating premiums, very few risks are really "average"; some are much worse, some are much better. A method is needed to recognize those differences to encourage the prevention of industrial accidents. Experience Rating provides that method.

How It Works

The insured's manual premium is adjusted by the experience modification which is expressed as a percentage factor. The result is called the standard premium.

If an employer has a good loss record with an experience modification of 75%, the standard premium will be 25% below manual.

On the other hand, if the experience modification is 125%, due to poor loss record, then a surcharge of 25% above manual will be applied.

Both the credits and the debits can be significant. For example, a risk that develops a manual premium of $100,000 would pay only $75,000 with a 75% experience modification, or $125,000 with a 125% "mod". The difference in premium is $50,000 for one year. The experience modification factor is computed and published annually for each experience rated risk by the WCIRB, not the insurance company. This factor is applied on the policy anniversary date for a period of one year. Any insurer issuing a policy must use the published modification.

Experience rating is not the same as a dividend plan. Experience rating adjusts future workers' compensation premiums. Dividends are excess premium dollars returned to an insured after a policy has expired. Dividend plans are not mandatory or automatic and may be applicable to non-experience rated as well as experience rated policies. Dividend plans are quoted by the insurance company on an individual basis and by law cannot be guaranteed.
the ex mod