Employers whose annual premiums exceed $9,200 in annual premiums need to start paying closer attention to their workers’ compensation policies and safety practices.
Under California’s workers’ compensation system rules, starting Sept. 1, if your firm’s premiums exceed this new threshold, it will be issued what’s known as an “X-Mod,” a numerical of your claims history.
Your X-Mod is an important part of your coverage as it can dictate whether you pay lower or higher premiums based on your safety record compared to your peers in the same industry.
in late June, Insurance Commissioner Ricardo Lara approved a recommendation by the Workers’ Compensation Insurance Rating Bureau that the eligibility for so-called “experience rating” be reduced to $9,200 in annual premium from the current $9,500. The change was made to reflect wage inflation and the new expected loss rates.
The lower threshold, down considerably from about $15,000 a decade ago, means that more employers will be receiving an X-Mod this year.
If your firm will now be subject to experience rating (the term for generating an X-Mod), you should read the following:
What’s an “experience rating” and an “X-Mod”?
In order to price policies accurately, one of the most important tools in a workers’ compensation carrier’s arsenal is the “experience modifier,” or X-Mod.
The Workers’ Compensation Insurance Rating Bureau calculates employers’ X-Mods by collecting their claims information from their insurers. The Bureau is the workers’ compensation information clearing house for California.
The X-Mod is a number that reflects your claims history (both the number of claims and the cost of claims and how much your insurer sets aside in reserves for claims they expect to pay out for over time. The number compares your organization with the rest of your peers in your class code.
For VMA members the following class codes apply depending on their operations:
- 4297(2) Graphic Design — all employees — including clerical office employees
- 8019(1) Printing — quick printing — all employees — including clerical office employees and outside salespersons
- 4299(1) Printing operation— all other employees — including counterpersons and drivers and their helpers
- 4295(1) Printing operation — screen printing — all other employees
- 8846(1) Printing operation — screen printing — editing, designing, proofreading and photographic composing — including clerical office employees
The X-Mod gives you the power to better control your workplace safety. You’ll want to focus on running a safe workplace since a high X-mod results in higher premiums and a low X-Mod will result in reduced premiums. In other words, a high X-Mod incentives you to improve safety in your organization.
Also, once you have an X-Mod, more insurers will be interested in quoting your business during renewals as it gives them a good idea of what kind of risk your organization is.
And while insurers don’t publicize it, they will often take into consideration your X-Mod when quoting other policies like commercial auto and liability. They reason that a company with a low X-Mod will not only be focused on workplace safety as well other forms of risk management, according to Dale Debber, publisher of the Workers’ Comp Executive newsletter.
“For carriers who are not w/c carriers the x-mod can be an indicator of the quality of management,” Mr. Debber said.
These class codes not only cover the industry you are in, but also your various employees. After all, you should not have to pay the same workers’ comp premium for an employee on the floor in your company as you would for your bookkeeper.
The most important element of your X-Mod is your claims history — how many claims you’ve had and how much your insurance company had to pay for (and reserve) for these claims.
How Your Claims History Affects Your Premium
X-Mods a numerical grade for your workers’ comp claims history, with 100 being the average for each particular class code. A number less than 100 means your claims costs are less than your industry average and if it’s more than 100 it means that your costs are higher than average.
The insurers will use your X-Mod to either surcharge or discount your premium. For example, if you have an X-Mod of 80, your insurer would discount your premium by 20%. If you have an X-Mod of 120, your insurer would tack on 20% to your premium as a risk surcharge.
X-Mod classifications run a little late to err on the side of caution. Workers’ compensation is considered a “long-tail” insurance coverage because claims can remain open for many years — sometimes even a lifetime. Claims costs are not evaluated until 18 months after your policy incepts.
In other words, if your policy incepted Jan. 1, 2022 and you had a claim in June, the X-Mod wouldn’t be calculated to include 2022 until July 1, 2023.
Claims costs include already-incurred outlays as well as expected future costs that the insurance company has set aside reserves for medical care and indemnity payments.
X-Mods are calculated using three years of claims history.
We know all this can be confusing.
If you want help understanding your workers comp, contact Shannon Wolford, Director of Sales and Membership at VMA at shannon@visualmediaalliance.org and she’ll be happy to go over it with you.