Spring 2008

Get Experienced With EMods
By Shelly Horelica, Senior Marketing Specialist

As a marketing specialist, one of my primary jobs is finding out what’s on agents’ minds. One question that consistently comes up is, “How do I make sense of experience modifiers?”

What is an experience modifier?
Let’s start with a refresher on how we calculate workers’ compensation premium. We multiply the rate for each class code per $100 of payroll for employees who work in that class. Then, we introduce the experience modifier (E-Mod) to the calculation.

An E-Mod is an adjustment in premium to reflect an employer’s loss experience. It allows insurance carriers to distinguish among employers in the same rating class or of a similar premium size.

E-Mods are based on a formula: Actual Losses/Expected Losses=E-Mod.

Loss experience is a more reliable predictor of future losses for larger premium. So, we do not apply an E-Mod to employers who have less than $5,000 in premium. Small employers are, however, eligible for a Small Employer Incentive Credit.

See the Texas Basic Manual of Rules for Workers’ Compensation and Employers’ Liability Insurance, Rule XVII for more information.

How do E-Mods affect premium?
The E-Mod formula puts a cap on larger losses. It also gives greater weight to accident frequency than severity. Claims with $0 losses are not considered in the frequency calculation and do not affect an employer’s
E-Mod.

Company	Premium	Experience Modifer	Final Premium	Projected 5 Years
X	$100,000	1.00	$100,000	$500,000
Y	$100,000	0.7 (credit)	$70,000	$350,000
Z	$100,000	2.00 (debit)	$200,000	$1,000,000

When can the carrier change an E-Mod?
An employer’s losses fluctuate over time, but insurance carriers generally cannot change an E-Mod. The Texas Department of Insurance allows exceptions if a clerical error was made, a subrogation recovery was collected or the claim was later declared noncompensable.

If a carrier needs to lower an E-Mod, it must do it retroactively to the inception date of the policy or the anniversary rate date, if it is different than the effective date.

Carriers can increase an E-Mod in a similar manner, but only if they follow certain guidelines. Refer to the Texas Workers’ Compensation and Employers’ Liability Manual, for details.

How can employers reduce their E-Mod?
The best way to reduce an E-Mod is to reduce losses. The best way to reduce losses is to prevent accidents.

Encourage your clients to visit www.texasmutualsafetyfirst.com for three steps to a better safety program. They can also use our free safety resource center to:

• Find and correct the root causes of accidents.
• Get safety programs designed around their operations.
• Compare their incidence rate with the national average.
• Find out how much money accidents cost their businesses.
• Get DVDs, videos and other training materials.
• Read safety hot topics.

When accidents do happen, policyholders should report them as soon as possible. Early reporting is crucial to controlling claim costs. The fastest way to report injuries is online.

From there, a return-to-work program can help control benefit payments, lost productivity and other costs associated with accidents. Encourage your clients to visit the Safety & Return-to-Work section for more information about return-to-work programs.

What if I have questions?
If you want to discuss a specific E-Mod or learn more about E-Mods, contact your underwriter, call the National Council on Compensation Insurance at (800) 622-4123, or visit them online. You can also visit the Texas Department of Insurance online.

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Get Experienced With EMods
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