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California Employer Question On Experience Modification Factor (XMod)


California Employer Question

A California employer emailed in this question last weekend.  “We are a medium-sized employer (dry cleaner) in central California.   Our Experience Modification Factor increased significantly over the last few years.  The increase seems to have resulted in our Workers Comp premiums rising significantly.   What is in included in the Experience Mod calculation?  Is this the same as the Mod that is produced by NCCI?”

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The Experience Modification Factor in California is called an Xmod or X-Mod.  It has the same basic function as NCCI’s Emod.   E-Mods and XMods individualize the riskiness of an employer’s work environment as compared to other employers with the same job types or functions

The XMod is produced by California’s Workers Compensation Independent Rating Bureau (WCIRB) and only applies to employers in CA.  The calculation of the XMod differs from NCCI’s E-mod calculations.

NCCI has recently significantly changed the way E-mods are calculated.  The WCIRB did not follow this change with any formula modifications.

The WCIRB defines an X-Mod as:

Dollar symbol California Employer shadow reflection
Wikimedia Commons – Svilen.milev

a comparison of the loss or claims history of one company to all other companies in the same industry that are similar in size. Generally, an experience modification of less than 100% reflects a better-than-average experience, while an experience modification of more than 100% reflects a worse-than-average experience. Accordingly, an experience modification that is greater than 100% usually increases the cost of your workers’ compensation insurance premiums, while an experience modification that is less than 100% usually decreases the cost of your workers’ compensation insurance premiums.

The XMod is calculated by comparing the actual losses to the expected losses. Actual losses are the claims, both medical and indemnity, that an insurance company must pay as a result of a work-related injury. Expected losses represent a business’s share of the annualized cost of projected losses for the industry in which it operates. In other words, given its classifications and payroll, expected losses represent the statistical average losses that a business of a similar size is expected to incur. Given two businesses within the same industry, the larger the business, in terms of payroll, the more losses that business is expected to sustain.

Money Of California Employer Underwater

If you were to read the NCCI’s definition of an E-Mod, you would see almost the same definition.  The one main area of difference is what is called Primary Loss.  In the NCCI states, before 2013, the primary part of the loss was set at $5,000.  The WCIRB has set its primary loss at $7,000.

The primary portion of the loss is more heavily weighted into the NCCI’s or WCIRB’s formula. In essence, your company will pay premium at a much higher rate for the first $7,000 part of a claim than the part of the claim that exceeds $7,000 known as the Excess Loss.

If you want to see why it costs more, you should check Primary vs. Excess Loss.  The X-Mod formula is not included in this post due to readability and fits on the page.

There are other factors such as class code rates and payroll that may also have compounded your premium increase.

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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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