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.

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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. 

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!