Yes, there really is a Perfect Mod! And the good news is that any workers compensation experience rated employer can achieve it! Today we’ll talk about the Perfect Experience Modification Rate, E-Mod, Mod, X-Mod or EMR and learn what it takes to achieve yours!
Do you know your Perfect Mod? If you don’t you should! Be sure to contact our office for help identifying yours! Sorry about the commercial…here we go…
Cost of a workers compensation policy, the premium you pay, from one year to the next, is not necessarily a fixed thing. It moves around and changes based on many variables. One of the most influential cost variables is an employers EMR. The task of experience rating workers compensation is to achieve a more representative rate for any individual employer taking into consideration their individual claim and loss experience. It’s the Experience Modification Rate that does this by analyzing experience data from an employers history, applying that data into the experience formula and developing a factor that is then applied to the premium.
Then if an EMR is specific to each experience rated employer, the Perfect Mod will also be specific to each experience rated employer!
Let’s take a look at how this works using this example of a Missouri based electrical contractor with outside sales and clerical staff.
- Electrical Contractor Payroll: $200,000
- Outside Sales Payroll: $50,000
- Clerical Payroll: $25,000
Scenario #1: Our contractor has incurred two workers compensation claims of $50,000 each within his experience period. These claims show up in his EMod calculation.
- 2-$50,000 Claims
- EMR = 1.46
Scenario #2: Our contractor has now gone claim free for three years and the two claims shown above have now fallen out of his experience period. His experience period is now claim free.
- No Claims
- EMR = .93
This electrical contractor has now reached his Perfect Mod!
The Perfect Mod must then be different for each employer, each classification, and each industry in each state. An electrical contractor in Missouri will be different than one in Arizona, Oregon or New Mexico and so on, even if they have the same payrolls because each state has its own rating factors that also get applied during the EMR calculations.
Using payrolls and classifications from our example above, the Perfect Mod for our electrical contractor should work out like this:
- Arizona = .88
- Oregon = .87
- New Mexico = .91
- Missouri = .93
As I mentioned above, different variables will effect the Perfect Mod for each employer. Here’s what happens when we change our electrical class payroll variable from $200,000 to $300,000 but all others remain the same:
- Arizona = .85
- Oregon = .83
- New Mexico = .88
- Missouri = .91
We now understand that the Perfect Mod is a moving target specific to each employer in each state within each industry classification. Here’s a few rating formula factors that will cause the Perfect Mod to be different for employers:
- Classification Codes used on an employers policy properly describing their operations;
- Payroll used for each classification code;
- State in which an employer conducts operations;
- Workers compensation claims and loss history included within the experience rating period.
What’s the single requirement for everybody to achieve the Perfect Mod?
- A Claim Free Experience Period!
Without a claim free experience period each employer will in some way or another be penalized by the EMR. And for most employers that means going a period of three years without suffering one single workers compensation claim! There’s your goal!
Hope this helps out!