Experience Modification Rating (Mod) Explained
Your experience modification rating, usually called your “mod,” is a number that adjusts your workers’ compensation premium based on your own claims history. A mod of 1.00 is average. Below 1.00 means you pay less than average. Above 1.00 means you pay more. That is the whole idea, and the rest of this post shows how it works and what you can do about it.
What is an experience modification rating?
Workers’ compensation insurance starts with a base rate for your type of work. Then your mod is applied on top of it, like a report card for your safety record.
Businesses with fewer and smaller claims than similar companies get a credit mod (below 1.00). Businesses with more or bigger claims get a debit mod (above 1.00).
Here is a simple example with made up numbers:
| Mod | What it means | Premium on a $100,000 base |
|---|---|---|
| 0.85 | Better than average | $85,000 |
| 1.00 | Average | $100,000 |
| 1.20 | Worse than average | $120,000 |
The same company, doing the same work, can pay very different amounts depending on its mod.
Who calculates my mod?
In most states, a rating bureau called NCCI calculates it. A handful of states use their own independent bureau. You do not create the mod, and your agent does not set it. Your insurance company reports your payroll and claims, and the bureau does the math.
Whether you are large enough to be “experience rated” depends on your premium size and your state’s rules. Very small businesses may not have a mod at all.
What goes into the calculation?
The bureau compares two things:
- What you actually had in claims over the rating period
- What a typical business your size and type would be expected to have
If your actual losses are lower than expected, your mod goes down. If they are higher, it goes up.
Three details matter most:
- Three years of history. The mod usually looks at three policy years, and it leaves out the most recent year. So a claim you have today can affect your mod for about four years.
- Frequency counts more than one big claim. Losses are split at a “split point” set by the bureau. The smaller part of each claim (the primary part) counts at full weight. The part above the split point counts less. Many small claims can hurt you more than one large claim.
- Payroll and class codes matter. The “expected” number comes from your payroll and the class codes on your policy, so wrong codes or wrong payroll can throw off the result.
Why does my mod matter?
Your mod does more than set your premium:
- Your cost. A higher mod means a higher workers’ compensation bill every year it applies.
- Winning work. Some customers, brokers and contractors ask for your mod before they hire you or let you bid.
- Finding coverage. A high mod can limit your choices when you shop for a policy.
For trucking companies and other businesses with drivers and heavy equipment, workers’ compensation can be one of the larger insurance costs. That makes your mod worth watching.
How can I lower my experience mod?
There is no quick trick, but these steps help over time:
- Prevent injuries. Training, safe lifting and loading practices, equipment maintenance and a written safety program all reduce claims.
- Report claims quickly. Fast reporting helps get the right care and keeps claims from growing.
- Bring people back to work. A return to work or light duty program can keep costs down on lost time claims.
- Manage open claims. Ask your agent and insurer about reserves on claims that are still open. A claim that stays open with a high reserve keeps pushing your mod up.
- Check your worksheet for mistakes. Your mod comes with a worksheet that lists each claim and your payroll. Errors do happen, such as a claim counted twice, a wrong class code or an ownership change that was not reported. If you find one, ask your agent to help you request a correction.
- Ask about recoveries. If someone else caused the injury, money the insurer recovers can reduce what counts against you.
What are the most common mod mistakes?
- Never asking for the worksheet. If you have not looked at it, you cannot catch errors.
- Not reporting changes. Buying, selling or merging a business can change how your mod is figured.
- Ignoring small claims. Several small claims add up faster than most owners expect.
- Waiting until renewal. Your mod is set by what happened in past years, so safety work pays off over time, not the week before renewal.
- Assuming it can’t be reviewed. You can ask to have it reviewed when something looks wrong.
