Experience Modifications are powerful. They can help or handicap your business in a big way. I’ve seen businesses go out of business because of a surprise massive Experience Modification. I’ve seen a workers comp premium go from $20,000 to $75,000 all because of an Experience Modification increase.
What is an Experience Modification? Some call it Emod, some call it Xmod…. I like Xmod, and that’s what I call it…. so it what is it? An Xmod is a discount or surcharge applied by the state of California to your workers comp. It follows you where ever you go: whether you’re with Insurer A or Insurer B, you will still have the same Xmod.
How is it determined? It is a kind-of-complex formula based on your payroll and losses over a three year period of time. “Losses” = the amount paid out for your employees’ injuries, both medical costs and supplemental income for time away from work. I won’t go in the details but it works like this: the more payroll you have and the fewer dollars paid out for losses you have, the lower your Xmod will be. The lower payroll you have and the greater your dollars paid out for losses you have, the higher your Xmod will be.
What is the purpose of an Xmod? It is simply this: to reward businesses that have small amounts of losses and offer incentive to businesses that have high amounts of losses to reduce their losses.
Some of you are now thinking I’m crazy. You’ve had workers comp for 20 years and have never had an Xmod. That may be true. That’s because you’re too small to receive an Xmod. In order to qualify for an Xmod you have to meet a certain threshold, which is another detail I won’t get into now because it involves introducing and defining too many new terms which will cause us to lose sight of the purpose of this post.
What is the purpose of this post? To let you know that Xmods are changing, again, in 2017. As mentioned, the purpose of the Xmod is to reduce losses. But we all know that no matter how compliant, careful, or proactive you are about safety, you may have a very large shock loss that you could not have prevented no matter what. A freak accident resulting in death or permanent disability. The math that created your Xmod doesn’t understand this and will penalize you the exact same way as the grossest grossly negligent employer that has ever existed. The WCIRB (the organization that determines your Xmod) has been aware of this and has made measures in the past to prevent one large shock loss from sending your Xmod so high it puts you out of business. And in 2017, with the introduction of variable split plans, they are further refining the formula in the same way. This new change will make it so that one large loss won’t have as much of an impact on your Xmod, but a higher frequency of claims will.
I’m not going to get into the details of the variable split plan on this post, but if you want to know more, read what the WCIRB has to say here: www.wcirb.com/rating2017
Overall, I see this as good news. One big loss could happen to any business and it shouldn’t put that business out of business. Here’s to 2017!