What is an Xmod?
What is it?
A workers compensation insurance Experience Modification Rating (EMR or Xmod) is a number used by insurance companies to either discount or increase the premiums you pay for workers compensation insurance. It is based on your companies’ workers comp claim history and reflects the most recent 3 years.
An Xmod or EMR of 1.0 is considered industry average. Anything higher than 1.0 and your company is getting surcharged or penalized for a negative loss history. If your company has an Xmod of 1.3, your base workers comp premium is being surcharged an additional 30% because of previous claims. But it works both ways. if you have an Xmod of 0.7, your base workers comp premium is being discounted 30%, saving you money, giving you a competitive edge on your competition, and making you more profitable.
How is it calculated?
First of all, not all companies are eligible for an Xmod. You must meet your state’s minimum requirements with most states requiring a certain amount of payroll and years of workers comp insurance history. For example, in California eligibility is determined by having at least 3 years of workers comp insurance history and then meeting thresholds for payroll in specific class codes.
If you meet your state’s eligibility requirements, your company’s Xmod is determined by comparing the actual losses of your company versus the expected losses projected for similar companies in your industry. Actual losses are easy to calculate, simply look at your previous workers comp loss history and look up the costs for previous medical & indemnity claims. Expected losses are a little more difficult to calculate and each state’s workers comp rating bureau uses a different formula to predict this. The basic formula is below:
Experience Modification Rating = Actual Losses / Expected Losses
How can I lower my Xmod?
The good news is that the Xmod or EMR can be lowered. The bad news is that it may take a while. As mentioned earlier, your Xmod is determined by the claims history of your company’s 3 most recent workers comp policies so it is not a quick fix. But consistent application of certain safety and management procedures will move your Xmod from the realm of premium surcharges into the realm of premium discounts.
- Develop a culture of safety at your company. Safety should be every employees’ priority and the only way that happens if it is management’s priority. Set goals, measure them, and reward employees if they meet their targets. Trust us, the cost to institute such systems are a lot less than the negative effects of workers comp claims and higher Xmods.
- Use your insurance company’s Medical Provider Network (MPN). The insurance company has negotiated better rates with certain medical providers, which mean the costs of the claim are lower than if the employee were to be treated out of network. Be prepared, know which MPN to use before a claim happens.
- In California, first aid claims can be paid out of pocket by the employer and do not affect xmod calculation. A first aid claim is defined as “any one time treatment, and any follow-up visits for the purpose of observation of minor scratches, burns, splinters, or other minor industrial injury, which do not ordinarily require medical care…”. Check with the clinic that treated the employee and see if the accident meets the tests for first aid care. If it does, pay the medical clinic directly.
- Speed is crucial. State guidelines typically require you to report a claim within 5 days. But statistics show that late reported claims cost significantly more than claims reported immediately. Most carriers offer telephone reporting services available 24 hours a day. Also, get involved in the claim and work to get it properly reserved and/or closed as soon as possible.
Let us help!
All we do is contractors insurance, this is kind of our thing. We listen to insurance podcasts and read insurance journals in our spare time. We would love to talk to you about your current workers comp policy and see if we can provide any solutions to lower your Xmod. Give us a call, 855-95-SHIELD.
