Understanding the Experience Modification Factor
Presented by Steve McCarty, CSP
Risk Control Specialist
PMA Companies
Today’s Objectives:
•
Establish common, practical
knowledge about Experience
Modification Factors.
•
Identify ways one can have an impact on
the Experience Modification Rate and
save your company money.
Questions to ask Yourself:
1. What is your current mod and your three year
mod trend?
2. What will the impact be of the next year to
“roll off” the calculation? (+ / - )
3. What will the impact be of the next year to
come into the calculation? (+ / - )
4. *What can we do to impact the mod?
Experience Modification –
The Basics
•Also known as EMF, X-Mod or Mod
•Based on 3 Year Loss History*
07
08
09
10
11
12
Where Do Exp Mods Come From?
Rating Bureaus
1. NCCI
2. Certain State Rating Bureaus
1. Pennsylvania
2. Delaware
3. New Jersey
4. + more
NCCI State Map
Why Are Exp Mods Important?
• Ability to Obtain work
• Premium Calculator (Manual rates are multiplied
by the Mod)
The Rating Process: 1-2-3…4
1. An actuarial based method
2. Codes exist for all ‘professions’
3. Bureau sets rates ($) for each code
based on claims experience in the class
4. Rates are used by insurance companies
for premium basis
Manual Premium
• Class Code Rate
– Class code based upon nature (risk) of work
– Cost per $100 of payroll
– Examples:
• Code 7373 – School Bus Contractor: $4.94 per $100 of payroll
• Code 8385 – Bus Company Garage Employees: $3.97 per $100
of payroll
• Code 7382 – Bus Co All Other Employees: $8.25 per $100 of
payroll
• Code 8810 - Clerical is $0.25 per $100 of payroll
• Class Rate X Class Payroll/$100 = ‘Manual Premium’
• Everyone with same class codes in the same state starts
with same manual premium.
Developing Your Mod
NCCI compares:
your actual losses (3 yrs)
to
the expected losses in the
class over a three year period
= Your Exp Mod
Example: $100,000 annual manual premium
DEBIT (1.5 = $150,000)

Base (1.00 = $100,000)

CREDIT (0.50 = $50,000)
Sales Required to Pay for a Debit Mod
If your company profit margin is:
Additional
Costs
1%
2%
3%
4%
5%
$1,000
$100,000
$50,000
$33,000
$25,000
$20,000
$5,000
$500,000
$250,000
$167,000
$125,000
$100,000
$10,000
$1,000,000
$500,000
$333,000
$250,000
$200,000
$25,000
$2,500,000
$1,250,000
$833,000
$625,000
$500,000
$100,000
$10,000,000
$5,000,000
$3,333,000
$2,500,000
$2,000,000
Common Misconceptions
– Zero dollar incidents impact calculation
– Insurance companies calculate and set rates
– ExMods can never be ( < ) .75 & ( > ) than 1.5
– A company can not have a ( + ) impact on
their ExMod
Exp Mods: Incentives for Both Parties
• Motivate business to
perform well
• Motivate carriers to
write less than
average business
• A very practical,
numbers driven
system
Some Tough President Questions
1.
We had a major increase in our
WC premium, did you know this
was coming?
2.
We couldn’t bid on a project due
to our X-mod. Why?
3.
If we have a good year this year,
will it go back down?
4.
Are we having a good year?
5.
Our experience mod is 1.54. Is
that good?
6.
What direction is it heading?
7.
What can we do to make it go
down?
Driving the Mod Down
• A combination of:
– Safety management
– Claims management
• Long term risk
management mindset
Controllable Factor?
• What is controllable?
Your losses!
Your claims dollars
help determine your
workers’
compensation
premium in future
years
Driving the Mod Down
•
Good job candidate
screening
•
•
•
•
MVR review & stringent
review criteria
Drug testing
Require new DOT
physical
Consider use of functional
capacity evaluations
Driving the Mod Down
•
Effective employee
monitoring
•
•
•
At least annual MVR
review
Post accident, random
and for cause drug testing
Active driver monitoring &
enforcement
(e.g.,DriveCam,
SmartDrive and “1-800
How’s My Driving”
programs, at least annual
driver shadowing etc.)
Driving the Mod Down
•
Other Workplace Controls
•
•
•
•
•
Conduct regular safety training for all existing
employees in driving safety; slip, trip & fall
prevention and safe lifting
Establish 1-person lifting limits (<75 pounds)
Establish footwear policies (rubber sole with good
tread) and consider the required use of rated slipresistant footwear.
Conduct regular hazard surveys for unsafe
conditions and unsafe acts in shop/yard areas.
Thoroughly investigate all work-related accidents to
identify root cause and actions to prevent
recurrence.
Driving the Mod Down
•
Medical Management
•
•
Use preferred provider
network physicians as
recommended by your
workers’ compensation
carrier to reduce
medical/claim costs.
Be creative in
establishing “transitional
duty” jobs that help keep
employees at work even
with doctor-imposed
restrictions.
Contact Information for Steve McCarty:
Phone: (410) 527-3212
E-mail: steve_mccarty@pmagroup.com