One of the most significant factors influencing the cost of workers’ compensation insurance in California is a business’s experience rating or ExMod. This number, applied to each business depending on a number of factors, modifies the base rate offered by the company’s insurance carrier and therefore directly impacts the total cost of insurance.
The California Workers’ Compensation Experience Rating Plan is overseen by the WCIRB and approved by the Department of Insurance. It’s role is to compare each employer’s past loss record to all members of the same industry classification. The cost of insurance is then adjusted based on the rating applied after this evaluation. As a result, employers are able to develop loss control systems that offer significant premium savings if they take the time to implement key safety provisions.
Not all businesses are eligible to receive an ExMod rating, however. There is an eligibility threshold of $10,300 that businesses must meet. This number is calculated by applying the approved expected loss rates to the total remuneration for the business, and this is only applicable following completed policy periods.
HOW EXMOD WORKS
As a policyholder, you have a manual premium charged by your insurance carrier – the base right times your payroll in hundreds of dollars. The experience modification is applied as a percentage of that total, with the baseline being 100 (meaning no debits or credits to your manual premium).
After applying the ExMod, the result is the Standard Premium and can be either higher or lower than the original manual premium. For example, if an employer has a good loss record and receives an ExMod of 80, they would pay 20% on their Standard Premium from the base rate applied. On the other hand, if they have a poor loss record and their ExMod rating is 125, they would pay an additional 25% over that base rate.
This can add up significantly. If your manual premium is $50,000 a year for example, a good loss record such as the one above would save you $10,000 in premium, whereas the bad loss record would result in an additional $12,500 per year in premium.
These numbers are computed by the WCIRB and published every year, meaning the insurance company has no oversight on how your insurance rates will be modified. Your ExMod will be updated each year on your anniversary date and will apply for the full coming year – it cannot be changed midyear.
HOW THE RATING IS CALCULATED
Every insurance company will report the individual experience of their policies to the WCIRB every year. The first filing is only made after 18 months of the policy being active. After that, two additional filings are made at one year intervals. In these filings, total payroll for each class code is provided as well as a listing of all claims over $2,001 on an individual basis (those less than this amount are grouped together).
Using this data, the WCIRB will provide a rating based on three policy years’ of data. The most recent policy year is usually omitted to ensure open or late reported claims to close before they impact the rating.
There are some businesses who are either too new or whose total remuneration is too low to qualify for an ExMod rating. These companies are considered to have a rating of 100 and pay the Manual Policy rate offered by the insurance company until an ExMod is assigned.
LEARN MORE ABOUT EXMOD AND HOW TO REDUCE YOUR WORKERS’ COMPENSATION COSTS
Because your experience modifier has such a large impact on your workers’ compensation policy rates, its’ well worth investing time in reducing claims, improving safety programs, and controlling loss as much as is possible in your industry.