A Key Component to Your Worker’s Comp Rating - Experience Modifier

In the most simple of explanations the experience modifier or X-mod is a rating factor that either raises or lowers the cost of your workers' comp. Understanding how it functions is a key component in getting it to work in your favor. The most successful companies have someone who monitors this factor periodically throughout the year. Because it has a direct correlation to the cost of your comp over a long term period, it does not take much to assign this task to a detailed oriented employee on staff.

Arizona businesses have their X-mod calculated by the National Council on Compensation Insurance (NCCI). Your X-mod compares your comp claims to other employers of similar size in the same industry using the same classifications. The X-mod is made up of the three full years prior to the most recent year’s experience. For example, a rating for 2011 would not use 2010 for the calculation but would use 2007-2009.

If you want to stay ahead of your competition, managing your work comp (an overhead cost) better than your competition gives you an edge. Everyone starts out at 1.0, but if you have poor claims management and it creeps up to 1.20, then you would pay 20% higher than your industry average. If you manage your safety and loss control, which produces a resulting .80, than you are 20% ahead of your industry average.

Let's take a look at two different X-mod scenarios based on Class Code 0005 (Farm Nursery Employees and Drivers) and a total payroll of $800,000. 

The two X-mod examples above illustrate nearly an $8,000 difference in premium! Claims can be managed successfully with a good safety program and a vigilant watch over claims that occur. It pays to have a good claims manager in place, however, if you don’t have someone on site, partnering with a good agency or brokerage firm that offers the service can help pay for itself. If you are interested in learning more about Western Growers Insurance Services Claims Management, please contact us.