The Experience Mod Equation Revealed
The Experience Mod equation – does it look complicated? I have been asked often how the Workers Compensation E-Mod/X-Mod is calculated. I am also usually asked why a certain company’s E-Mod increased so dramatically. The E-Mod individualizes a company’s risk to that company.
The E-Mod is calculated figured from the following formula:
| Actual Primary Losses | + | Ballast Value | + | Weighting Value Times Actual Excess Losses | + | (1 Minus Weighting Value) Times Expected Excess Losses | = | Total A |
| ——– Expected Primary Losses | + | ——- Ballast Value | + | ——————- Weighting Value Times Expected Excess Losses | + | —————— (1 Minus Weighting Value) Times Expected Excess Losses | = | ——- Total B |
For the E-Mod, divide Total A by Total B.
The Actual and Primary Losses are affected the least by the other rating factors. The weighting value appears on the bottom left of the Experience Mod calculation page from the respective rating bureau (NCCI, WCIRB, etc.). Most of the rating bureaus have now increased the Primary Loss maximum figure in the last few years. NCCI has for instance increased the value to 15,000.
The simplest way to analyze the E-Mod formula is:
the losses that you had for the last three years divided by the losses that your company was expected to have over those same three years.
The simplest E-mod formula is your company’s losses / your company’s expected losses. The expected losses come from similar company’s data in your state or states in which your company operated over the previous four years – leaving out the most recent policy year.
I will break down the formula later this week and what employers can do to lower their E-Mod.
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