1. Your workers compensation experience modification factor (e-MOD) directly impacts the amount you pay for workers compensation insurance.
  2. Your e-MOD is calculated by the National Council on Compensation Insurance (NCCI) or by your state department of insurance.  It represents your workers compensation claims experience compared to other employers of similar size and type of business.
  3. The average e-MOD for each business classification is 1.0. Companies with workers compensation losses greater than the average will have an e-MOD above 1.0 and those with fewer losses will be less than 1.0. The e-MOD essentially rewards companies with fewer losses and penalizes those with excessive losses.
  4. Only 3 factors determine your workers compensation premium – your NCCI payroll classification, total annual payroll and the e-MOD. Therefore, the only way to reduce your workers compensation premium is to lower your e-MOD.
  5. The most effective way to control or lower your e-MOD is to implement safety policies and a return-to-work (light duty) program.
  6. Review your job classifications annually. Improper classification of employees can result in an increase in your workers compensation premium.
  7. Current trends indicate that many businesses are now refusing to use vendors or contractors that have an e-MOD greater than 1.0.
  8. A company with an e-MOD of 1.2 may pay an additional $10,000 in workers compensation premium.  At a 10% profit margin, that company would need $100,000 in additional sales to cover that unnecessary yet controllable increase.
  9. Your e-MOD is primarily impacted by claims frequency, not the severity of those claims.  A single claim valued at $100,000 has less of an impact on your e-MOD than 10 claims valued at $2,000 each.
  10. Current year claims provide the greatest opportunity for cost containment.

e-MOD & The Bottom Line

Every business owner and executive should understand that their workers compensation experience modification factor (e-MOD) impacts how much they pay for workers compensation insurance.  It’s also the only way these costs can be controlled.

The e-MOD is calculated each year using a combined claims history from a three-year rolling period.  Each year, the rolling period drops off the oldest policy year and adds the most recent.  If a company has unusually high claims during one policy year, the rate will adjust for the next three years.  There is a one-year lag before a year is included in the experience modification calculation.  The one-year lag is necessary because the entire cost of claims resulting from serious injuries may not be fully realized for a year.

The average e-MOD for each business class code classification is 1.0.  This means that a company with an e-MOD of 1.0 will pay 100% of the manual premium in their workers compensation premium calculation.  Typically, higher losses results in a higher e-MOD.  For example, a company with an e-MOD of 1.57 will pay 157% of their manual premium.  This 57% surcharge reflects the higher than average claims and losses that the company experienced.  An e-MOD can also be lower than 1.0.  For example, a company with an e-MOD of 0.67 will pay only 67% of their manual premium.  This essentially gives this company a 33% discount for having lower than average losses, claims and injuries.

The following example illustrates different e-MODs and their impact on workers compensation premiums – and the bottom line. 

e-Mod Pic
The e-MOD has a significant impact on what a company pays for workers compensation insurance.  The difference between the low e-MOD and the high e-MOD in this example is $67,500 for the same insurance!

Request your company’s e-MOD Today!