State and federal laws require that most businesses carry workers compensation insurance for their employees. While factors like size and industry impact the costs of a policy, a companys annual premium could increase or decrease based on the experience modification system. This rating system, also known as the NCCI ex-mod, corresponds to the number of workers comp claims a company has filed.
A Simple Number
The ex-mod is used to incentivize companies to work toward a safer workplace. It is a percentage with a base rating of 100% or 1.00. This is the average rating across the different classes of business. The claims history for a company will cause the ex-mod to move toward a debit or credit. If the number dips below 1.00, it is ranked as a credit. A number that exceeds 1.00 is a debit. Having a credit means the losses for the year were better than predicted or estimated, resulting in a better premium rate for the next policy term. A debit means the losses exceeded expectations and the insurers risks are greater.
A Positive or Negative Situation
The ex-mod number can be either positive or negative. When claims are minimal, the number is positive. When a company has difficulty managing and limiting claims, the number dips into the negative. Though the process used to determine the ex-mod may be complex, understanding it and improving it could save a company thousands each year in premium expenses.