What is the impact of the X-Mod formula?
The greatest source of confusion regarding workers’ compensation rates in 2010 centers on recent changes to the California Experience Rating Plan (ERP). Companies with premiums in excess of $16,299 can qualify for a premium multiplier called an experience modification factor, or X-Mod. This multiplier takes into account a company’s payroll and loss history (generally for three years) and compares them to companies with similar classification codes. Depending on your company’s loss history, the result is a multiplier, which adjusts your premium upward or downward. Historically, an X-Mod of 100 percent signified average results or that your company’s losses were equal to what the WCIRB forecasted your expected loss results to be based on your payroll and classification codes. However, with recent changes to the ERP formula, it casts some real doubt that this will be the case any longer.
The new X-Mod formula appears to only reward near perfection (relatively claim-free results). If a company has no losses it can benefit from the recent changes made in the experience rating plan. What was once deemed as average results is no longer the same, and there are many companies with losses even below the bureau’s ‘expected loss values’ that have 2010 X-Mods greater than 100 percent.
What is the best strategy for surviving in 2010 and beyond?
The best counsel we can provide is to ensure that your company has an effective risk management and safety program including the assistance of a claim specialist to help manage your claims through closure. Now more than ever, every single claim counts and frequency of claims must be addressed more aggressively. In order to survive these and future changes in the experience rating plan, you must understand the formula and how to succeed within the system.
The new X-Mod formula does reinforce the connection between safety and lower premiums, but this requires your employees’ buy-in and understanding of how workers’ compensation claims impact them personally. In some industries it is paramount that employees understand that if your company’s X-Mod exceeds 124 percent that you are disqualified from bidding certain types of work. No longer is workers’ compensation insurance just a cost of doing business; your X-Mod may be the primary determining factor in your company’s survival and the ability to secure future work.
Griff Griffith, CPA, CIC, is a principal with Garrett/Mosier/Griffith/Sistrunk Insurance Services. Reach him at (949) 559-3370 or [email protected].