Jul 05, 2023Managing Janitorial Work Comp Risk During Growth
How to Reduce Your Janitorial Company’s Ex-Mod
Your janitorial company has to maintain workers’ compensation under state law. Therefore, you may assume workers’ comp premiums are a necessary cost of doing business and there’s nothing you can do to reduce them. In fact, that’s only half true. Although workers’ comp is a necessary cost, a specialized partner can help you reduce your ex-mod, which can control the amount you spend on premiums.
How Your Workers’ Compensation Rates Are Calculated
To understand why your ex-mod matters, you need to know a little about how workers’ compensation premiums are calculated.
According to Insurance Business, the calculation used to determine workers’ compensation premiums is annual payroll divided it by 100 and then multiplied by both the class code rate and the experience modification rate. This means several factors have a direct impact on your premiums:
- The larger your payroll, the more you’ll pay for workers’ compensation. Larger employers pay more than smaller employers, and wages impact premiums.
- A job classification code is assigned based on the type of work you do. Jobs with higher risks see higher premiums.
- Your experience modification rate is determined by your claims history. Employers with a good claims history see their rates decrease, whereas employers with a poor claims history see their rates increase.
Understanding Your Ex-Mod
The experience modification rate (ex-mod) is the part of the workers’ compensation premium calculation that customizes rates to the individual employer.
Let’s say there are two competing janitorial companies. As they both provide the same type of cleaning and building maintenance services, they have the same job classification codes. They’re located in the same city, have the same number of employees, and pay the same wages. However, they’re not identical. One of the companies prioritizes safety and has had almost no work-related injuries. The other company has had frequent and sometimes severe work-related injuries. It wouldn’t be fair if these two companies paid the same amount for workers’ compensation – and the ex-mod means they don’t.
According to the National Council on Compensation Insurance, three types of ex-mods are possible:
- A unity factor is an ex-mod of 1.00. Since multiplying by 1.00 doesn’t change the original number, a unity factor does not impact rates. An employer may have a unity factor in several circumstances – for example, if it’s a new business and there’s not enough data to determine an ex-mod.
- A credit mod is an ex-mod of less than 1.00. Since multiplying by a number less than 1.00 results in smaller number, a credit mod reduces the cost of workers’ compensation. For example, if an employer’s premium is $100,000 before the credit mod is applied and the credit mod is 0.85, the employer’s premium becomes $85,000. Employers can earn a credit mod by having less frequent and less severe claims than the average for similar employers.
- A debit mod is an ex-mod higher than 1.00. Since multiplying by a number greater than 1.00 results in a higher number, a debit mod increases the cost of workers’ compensation. For example, if an employer’s premium is $100,000 before the debit mod is applied and the debit mod is 1.15, the employer’s premium becomes $115,000. Employers can be penalized with a credit mod if they have more frequent or more severe claims than the average for similar employers.
Reducing Your Ex-Mod
To estimate your ex-mod, look at your past three years of claims history. Employers can reduce their ex-mod – and therefore the amount they pay for workers’ compensation – by reducing the frequency and severity of work-related injuries over a three-year period. A specialized insurance partner can help you do this.
The janitorial sector has unique risks. Insurance professionals who don’t specialize in the industry may be unable to offer effective risk management advice. However, a program that specializes in the janitorial and building services sector can. Industry-specific expertise can offer insights into how to prevent claims and provide expert claims handling to improve outcomes.
Tangram’s janitorial and building services program offers the specialization you need to reduce your ex-mod. Our in-house risk management director can help you manage your risks, whereas our nurse triage services and specialized claims team can prevent minor incidents from escalating into huge claims. Learn more.