If there was a coupon to discount your workers’ comp insurance premium, would you use it? Who wouldn’t, right?
Here’s the good news: Your Experience Modification Factor, also known as X-Mod, actually can function like a coupon and directly cut the cost of your workers’ comp coverage. But (the bad news), it can also drive this same cost through the roof.
In this article, we will simplify what is considered the most complicated aspect of workers’ comp – your X-Mod – and how you can use it to save on your insurance premium. By reading it, you will learn what an X-Mod is, how it can directly affect the cost of your workers’ comp premium, and 4 applicable strategies to lower it and reduce your insurance expenses.
What is X-Mod?
Experience Modification, commonly known as X-Mod, is a unique rating that reflects your company's effectiveness in preventing workplace injuries and illnesses.
Think of it as your business's report card – except instead of for education, it evaluates and grades your business for safety. The safer your business practices, the better your X-Mod rating will be.
How does X-Mod rate your business’s safety?
X-Mod compares your claims and losses history against those of similar companies in your industry during an experience period (the 3 previous years excluding the most recent expired policy period). In doing so, it provides insights into how safe your business was relative to other comparable businesses over an equitable time period.
Using a rating value to quantify these safety insights, X-Mod ratings establish a standard, like a grading scale, for measuring industry safety:
If your claims and losses history is average, your X-Mod rating will be a neutral value
If your claims and losses history is lower than average, your X-Mod rating will be a lower-than-average value
If your claims and losses history is higher than average, your X-Mod rating will be a higher-than-average value
X-Mod rating values – What does this number mean?
The standard, or neutral value, for X-Mod is 1.0 – This value reflects the average claims history and costs for businesses in the same industry. In other words, your business has a track record of average safety practices.
If your X-Mod is below this benchmark, holding a value less than 1.0, it means that your business has a rate of incidents that is lower than the industry average. In other words, your business has a track record of above-average safety practices.
If your X-Mod is above this benchmark, holding a value greater than 1.0, it means your company has an average rate of incidents that is higher than the industry average. In other words, your business has a track record of below-average safety practices.
How does your X-Mod rating impact the cost of insurance?
Your X-Mod rating directly affects the cost of your workers’ comp premium – It can either drive the price you pay for coverage up or discount it.
As a measure of safety, X-Mod incentivizes safe business practices.
So, a low X-Mod, reflective of above-average safety practices, is the coupon that discounts your workers’ comp premium. On the other hand, a high X-Mod, reflective of below-average safety practices, operates as a markup to your workers’ comp premium.
The coverage premium discount or markup you get from your X-Mod rating depends on the difference between the industry standard X-Mod rating value of 1.0 and your X-Mod rating value.
Here are a few examples:
Let’s say your business has an X-Mod of 1.0. The difference between the industry standard X-Mod of 1.0 and your X-Mod of 1.0 is 0 (1.0 – 1.0 = 0) or 0% different. So, in this case, your workers’ comp premium would experience 0% fluctuation in either direction from the standard X-Mod of 1.0.
Instead, imagine that your business has an X-Mod of 0.7. The difference between the industry standard X-Mod of 1.0 and your X-Mod of 1.0 is 0.3 (1.0 – 0.7 = 0.3) or 30% lower. So, in this case, your workers’ comp premium would be 30% lower than it would have been with the standard X-Mod of 1.0.
Now, consider that your business has an X-Mod of 1.6. The difference between the industry standard X-Mod of 1.0 and your X-Mod of 1.0 is 1.6 (1.0 – 1.6 = - 0.6) or 60% higher. So, in this case, your workers’ comp premium would be 60% higher 60% higher than it would have been with the standard X-Mod of 1.0.
X-Mod rating eligibility – Do you qualify?
Before we dive into strategies to help lower your X-Mod and, as a result, reduce the price of your workers’ comp premium, it is important to note that not all businesses qualify for an X-Mod rating.
The eligibility for an X-Mod rating varies by jurisdiction however, there are some common factors that generally influence whether a business is eligible for an XMOD rating.
5 Factors that influence X-Mod eligibility
Business size – Smaller businesses may not be eligible for experience rating due to the disproportionate impact that a single claim could have on their X-Mod. Size eligibility is often determined by the total payroll or the number of employees.
Industry classification – Some industries may have specific eligibility criteria based on the inherent risks associated with the type of work involved. For example, a construction company might have different eligibility requirements compared to a retail business.
Claims history – A minimum number of claims or a minimum amount in claims may be required for a business to be eligible for experience rating to ensure that the X-Mod is statistically significant.
Duration of business operations – Newly established businesses may not be eligible for an X-Mod rating until they have been in operation for a specific period to establish a claims history.
Premium cost – There may be a minimum premium requirement to be eligible for an X-Mod rating and businesses paying premiums below this threshold may not qualify.
Now that you know the ins and outs of X-Mod, let’s talk about how you can use it to save money on your workers’ comp insurance.
Here are 4 ways to lower your X-Mod rating
1. Prioritize Safety
If you aren’t already doing this, it’s time to start!
Why? Because a safe work environment not only protects your employees and builds your business reputation but it also directly impacts your bottom line. After all, fewer injuries mean fewer claims, which in turn leads to a lower X-Mod and more affordable workers’ comp premiums.
Getting injured employees back to work as soon as possible reduces the duration and cost of claims and can significantly improve your X-Mod over time.
One way to achieve this is to offer light-duty or modified work assignments. For instance, an employee who usually does heavy lifting could be temporarily reassigned to administrative tasks while recovering.
3. Report claims promptly
Did you know that workers’ comp claims reported 3+ days after the date of the incident result in 64% higher costs, 31% more claimant attorney involvement, and a 16% longer claim duration period?
Timely reporting enables efficient claims management, which expedites the resolution process and reduces the cost of the claim.
Tip: Establish a system for immediate reporting of any workplace incidents using a digital platform where employees can quickly report incidents to ensure that the claim process starts as soon as possible.
4. Implement a claims management program
Regularly monitoring and reviewing claims can also lead to quicker resolutions and lower costs. In addition, it can provide valuable data that can be used to prevent future incidents.
Use your resources – Work with your insurance carrier to develop a robust claims management program. This could include a dedicated team that reviews claims weekly and identifies trends or areas for improvement.
Take the next steps – Turn safety into savings
Struggling with a high workers' comp premium? You're not alone.
Here at Combined, our commercial insurance experts have helped countless employers, just like you, turn their safety struggles into safety savings.
Now it’s your turn! With the 4 practical strategies in this article, all designed to lower both your X-Mod and your insurance premium in action, you can too.
Still need help? Schedule a meeting to speak with a team member!
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.