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Experience Modification Factor – Calculating Your WC Premium


Experience Modification Factor Calculations

The Experience Modification Factor calculations consist of four main areas.

Vector Icon of Experience Modification Factor Calculating Finance

As I mentioned in a prior post, your Workers  Comp premium calculations include 34 steps. However, those are the steps just to calculate your Experience Modification factor, also referred to as an E-Mod or an X-Mod.

To make a very long story short, four main elements determine your E-Mod:

  • total incurred
  • claim frequency
  • classification codes
  • amount of payroll per classification code

The payrolls per classification code are the basis for what is referred to as “Expected Losses”

Why was the Total Incurred from the last post so important? The Expected Losses are divided by the “Actual Losses” to calculate your E-Mod. Actual Losses are derived from the claims’ total incurred. The lower the total incurred is, the lower your actual losses. The lower your actual losses, the lower the E-Mod.

An E-mod is calculated on the total incurred SIX months after the close of the policy period. If you have a January 1st renewal date, the State Rating Bureau or the NCCI will calculate your E-mod on 7/1. How can you be charged for premiums six months after your policy has ended? You aren’t, as Workers’ Compensation runs one year behind.

Graphic Calendar January 1st Experience Modification Factor Calculations

If your renewal is 1/1/08, your Experience Period is from 4/1/03 through 12/31/06. Any policies that started on 4/1/03 and ended on 12/31/06 will have an effect on your 1/1/08 renewal for your 1/1/08 – 1/1/09 policy period. The Experience Period runs out on 6/30/07 at the close of the business day. Usually, If the reserves/total incurred are reduced by $1,000,000 on 7/1, that big chunk of $ will still show up on your E-Mod and eventually your premiums, even though it was reduced the next day.

I know this info is as exciting as watching grass grow, but it is cold hard cash we are talking about with your premiums. We will come back to the Experience Mod later. Whew! That was enough numbers for anyone to have to look at for some time.

Coming up next week:

  • Monday – The Unregulated Part of Your Work Comp Insurance Premium – you and the government/Department of Insurance have no control over it, and it can kill your insurance budget. Only one person has control, and it is not your Workers Comp insurance agent.
  • Tuesday – The Self-Insurance Phenomenon – shocking but true.
  • Wednesday – The Main Errors We Find When Auditing Workers’ Compensation Policies

***Please note that any of the terms in this post or others can be found at https://cutcompcosts.com/ under the Definitions tab.

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Experience Mod Predictions Accurate?

Experience Mod Predictions – Accuracy Depends on Who/Whom You Ask Most Experience Mod predictions can be a tedious process that has cofounded most people working

James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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