Understanding Your Workers Compensation Experience Modification Rate

By BKS Commercial Risk Advisors

insurance advisor points to calculator showing number from workers compensation experience modification rate

It’s important to understand — and monitor — your workers’ compensation experience modification rate (Experience Mod) because it directly correlates to how much you pay in workers’ compensation premiums. The lower your Experience Mod, the less you pay in premiums. But to be able to use your Mod to control costs effectively, you must first understand how it works. 

What is an Experience Mod?

In a nutshell, your Experience Mod compares your workers’ compensation claims experience to other employers of similar size operating in the same type of business. 

It’s the method for tailoring the cost of insurance to the characteristics of a specific business. It also allows that business to manage its costs through measurable cost-saving programs.

How is an Experience Mod Calculated?

The actual process of calculating the Experience Mod is complex, but the purpose of the formula is pretty straightforwardHere’s how it works: your company’s actual losses are compared to its expected losses by industry type. Factors taken into consideration are company size, unexpected large losses and the difference between loss frequency and loss severity.

Your Experience Mod is calculated by the National Council on Compensation Insurance (NCCI) or, in some states, by an independent agency. Experience rating is a mandatory plan that applies to all employers that meet a state’s premium eligibility criteria for the Plan. NCCI computes experience rating calculations; however, the NCCI experience rating is not recognized as the designated license rating in all 50 states. Access the NCCI State Map to see if the NCCI experience rating is designated in your state.

How Does My Experience Mod Affect My Premiums?

Your Experience Mod represents either a credit or debit that’s applied to your workers’ compensation premium. A Mod of 1.0 is considered to be the industry average. A Mod higher than 1.0 is a Debit Mod, which means your losses are worse than expected, and a surcharge will be added to your premium. An Experience Mod under 1.0 is a Credit Mod, which means losses are better than expected, resulting in a premium discount. 

Here’s an example of how this works:

PremiumExperience ModModified Premium
$100,000.75$75,000
$100,0001.00$100,000
$100,0001.25$125,000

As you can see in the table above, an Experience Mod of 1.25 would mean that insurance premiums could be as high as 25% more than a company with an Experience Mod of 1.0

How Can You Maintain a Low Experience Mod?

Of course, this is the question every savvy business owner wants to know. So here is a list of things you can do to be more proactive when it comes to lowering your Experience Mod:

  • Contact your advisor to verify your Experience Mod is accurate. You might be paying more (or less) than you should due to incorrect or incomplete data. 
  • Remember that the Experience Mod is influenced more by small, frequent losses than by large, infrequent ones. So the fewer losses you have, the better. 
  • Create a sound safety program and think of ways you can be proactive about injury prevention. This is also a good time to review your Employee Wellness Program.  
  • Also, create or improve an effective return to work program to help lower your Experience Mod. 
  • Report injuries promptly. Studies reveal that prompt injury reporting reduces the cost of claims. 
  • Implement an active claims management program to manage outstanding reserves and focus on efficiently resolving open claims. 
  • Train front-line supervisors and managers on how to manage injured employees. Supervisors play a crucial role in managing the injury and recovery process. When there’s a good relationship between the injured employee and the supervisor, chances are you’ll get better results. 
  • Practice due diligence during the hiring process. Hiring an employee who is not fit for the essential functions of the job will increase the risk of an injury. Of course, you’ll want to take the appropriate and legal steps in your “screening” process. 

To use your Experience Mod to control costs effectively, you must first understand how it works. The next step is to be proactive and talk to an Advisor who can help you identify specific areas you can improve on. This is yet one more reason why it’s essential to have a trusted Commercial Risk Advisor who can help guide you in the right direction.

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