How to Calculate Your Experience Mod
Staffing & Workers' Compensation
Experience modification factors are a critical component in the calculation of workers’ compensation costs. This factor alone can significantly increase or decrease your premium. Being a controllable factor, it’s important to understand what an experience mod is, how it’s calculated and how you can impact your premium for the better.
So what's an experience mod?
An experience mod, or mod, is a multiplier of premium that’s calculated for each qualifying employer. The eligibility requirements for an experience mod vary by state, but a mod is typically granted by one of the following two methods:
- Have enough premium subject to experience rating in the most recent 24 months
- Achieve the established premium threshold on average over the entire experience period
Experience mods are factors that compare an employer’s claims portfolio to the claims portfolio of an employer of a similar size (payroll) and industry. A mod of 1.0 is average, or in other words, the frequency and severity of claims within the claims portfolio equals the expected losses.
An experience mod greater than 1.0 means the employer experienced worse than expected losses during the rating period, and a mod less than 1.0 means the employer’s losses were better than expected during the rating period. The modification factor is applied to an employer’s policy as a multiplier, so a mod of 1.0 would not alter an employer’s premium, but a mod greater than a 1.0 would serve as a credit increasing premium, and a mod less than 1.0 would act as a debit and reduce premium.
How's an experience mod calculated?
Each experience mod is calculated using claims data from the three most recently completed years, excluding the current term. For example, when calculating a 2016 mod, payrolls and claims from 2012, 2013 and 2014 will be used. The formula used adjusts the actual losses during this timeframe so that the frequency (number of claims) is given greater weight than the severity (size of claims). For example, an employer with one claim totaling $50,000 will bode better with their mod calculation than an employer with five $10,000 claims.
How can you control your mod?
Safety first! Since frequency of losses is weighted more heavily than severity of losses, investing in safety controls to help minimize loss frequency will help you effectively manage your workers’ compensation costs. Implementing a solid safety program, Return to Work plan and loss prevention procedures will aid in mod reduction, and in return, positively impact your bottom line. Knowing your experience mod and how it applies to your premium can help you identify whether additional steps need to be taken to further reduce your workers’ compensation premiums.
For more information on experience modification factors and how to lower your workers’ compensation costs, contact an Assurance ‘A’ Team member today.
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