If you don’t understand X-Mods you are not alone, but it is a critical part of your Workers Compensation insurance costs. Below we will try to break down X-Mods into simple terms but it does not cover every aspect that could affect your X-Mod.
To get an in-depth explanation of how your X-Mod can affect your costs call a Workers Comp expert at 800-238-4654.
When you apply for Workers Comp Insurance, your premium is determined by a lot of factors including classification of payroll, manual premium calculation, and adjustments.
Classification
Most insurance carriers use the basic business and industry classification system developed by the National Council on Compensation Insurance (NCCI). Under this universal classification, employers are placed into groups based on similar exposures. If you are like most employers, you have multiple classifications because not all of your employees do the same job.
For example, a large roofing company might employ clerical staff, executives, and of course roofers. Each position in the company faces different workplace hazards, which is cause for different classifications. An experienced Workers Comp agent will help you make sure that all of your employees are under the correct classification.
NCCI assigns each classification a rate that is based on the collective loss experience of companies within that code.
Adjustments to Premium
Now that the manual premium is set, adjustments are made to reflect the individual characteristics of your company and used to help create the final premium.
Like your classification, X-Mods are calculated by NCCI. As an employer, you must meet certain criteria to qualify for an X-Mod. Generally, employers paying $3,500 in annual premium for two of a three year period, or $7,000 in premium in one year are eligible. The X-Mod calculation is generally based on the last three years’ losses and payroll per classification excluding the most recent year.
The X-Mod is designed to predict future losses on an individual employer by analyzing past losses. Normally the frequency of the accidents is a larger component of the X-Mod than the severity cost of accidents.
An important part of keeping X-Mods low is to endorse a safe work environment. Ask your agent about ways that you can create a safer work environment.
Example:
Company A = 1 loss of $100,000
Company B = 20 losses of $2,000 each
To achieve this blend of frequency X-Mods are ‘split rated’. Split rating divides the actual costs of a claim between 2 different buckets; primary and excess. For each claim, the first $5,000 is primary, any additional costs are excessive.
In the example above Company A only has a single claim which equals $5,000 in primary costs, while Company B has 20 claims at $2,000 each, which equals $40,000 in primary costs.
In the X-Mod formula, the primary value is given more weight than the excess. The expected losses are estimated and split between the primary and excess bucket. The actual losses are divided by the expected losses. The resulting number in the X-Mod.
If you have an X-Mod below 1.00 you had less than expected losses during the period. If you have an X-Mod above 1.00 you have losses that were more than expected compared to other employers in the same industry.
An X-Mod can be a reward for a good safety record or a penalty for a poor one. To keep your premiums and X-Mod as a loss as possible, it is important to create a safe workplace.
For more information on X-Mods and how they can affect your business, call 800-238-4654 to speak to a Workers Comp expert.
