The Experience Modification Rate (Ex-Mod or EMR) can be confusing, but for small business owners, the Ex-Mod is something you’ll want to familiarize yourself with. It’s a number that directly impacts how much you’ll pay for workers’ compensation insurance.
What does an Experience Modification Rate Mean?
The EMR is a metric that insurance companies use to gauge the risk level of your business. It includes factors like past injuries, total wages, and how likely you are to have future losses or claims. This rating can either raise or lower your insurance costs. When your company records fewer injuries than the industry average, your Ex-Mod typically drops below 100%. This figure translates into a direct discount on your insurance. To put it in perspective, if your Mod rate is 90% and the base premium is $100,000, you’d be required to pay only $90,000.
Why Does Ex-Mod Matter?
For certain sectors, like construction, the importance of Ex-Mod goes beyond just determining insurance prices. Possessing a high Ex-Mod rate can act as a roadblock, preventing you from securing specific jobs or even bidding on a project. Moreover, the consequences of an injury don’t just last for a year. An injury sustained in a particular year can influence your Ex-Mod for the subsequent three or four years. For instance, an injury in 2020 would continue to affect your Ex-Mod in 2022, 2023, and 2024.
What is the Primary Threshold (PT)?
The Primary Threshold, commonly abbreviated as PT, limits how much a single injury can raise your Ex-Mod. For example, if your PT is 20K, then a claim that costs 20K will impact your EMR the same as a claim that costs 100K or more. This lack of fluctuation is because, although some severe accidents might happen, it’s not always something the business can control. The idea behind Ex-Mod is to encourage fewer accidents.
Lastly, how Ex-Mod is calculated can vary depending on your location. In California, the WCIRB determines it; in other places, it’s the National Council on Compensation Insurance (NCCI). They might do the math differently, but a lower score saves money.
Tips for Small Business Owners to improve your EMR:
- Consider having a Return-to-Work program that allows injured workers to return to work, even if they’re doing light-duty tasks. This can reduce costs because you only cover their medical expense. Find a full blog post on Return-to-Work (https://smarterrisk.com/english/blog/five-steps-to-reduce-workers-compensation-costs).
- Prioritize safety! A robust safety plan can reduce your rating and decrease insurance costs; find a full blog post on safety plans (https://smarterrisk.com/english/blog/safety-made-simple/).
- If you need more clarification about setting up safety and risk control programs, tools like Smarter Risk (https://smarterrisk.com) can assist.
In summary, Ex-Mod is not just a number on a sheet; it’s a crucial factor that can impact your business’s financial health and future opportunities. By understanding, managing, and working to reduce your Ex-Mod, small business owners can create a safer work environment, save on insurance costs, and position their companies for success in the long run.
