The experience modification is used to determine your workers’ compensation premium. It controls how much money you spend on workers’ compensation each year, so it’s important to know what goes into your company’s rating—and keep an eye on any changes over time.
What is an industry class rating?
A class rating is a baseline for the frequency and cost of claims that the insurance provider expects to see from a business like yours. Depending on your industry, a different class rating will be applied to your business. All truck drivers are subject to one class rating, while oil field workers are subject to another.
Workers’ compensation insurance providers recognize that not all companies in one industry operate in the same way. That’s why this class rating is not the sole factor in determining your premium—but it is used in the calculation as baseline of expectations to compare with your experience modification.
What is an experience modification factor?
The experience modification factor, or mod factor, is a value that compares the claim profile of your company to the average claim profile of a company in your industry with a similar number of employees. If your mod factor is greater than what is expected, you could see increased insurance premiums.
Mod Factor Values:
|Less than 1||Better than expected|
|Greater than 1||Worse than expected|
How is the experience mod calculated?
Your company’s experience modification factor is based on the previous three years of data. Factors include the total cost of claims and frequency of claims. These claims are compared to the expected losses for your industry and the size of your organization to then calculate your experience mod factor.
How can you reduce your experience mod?
In short—an emphasis on health and safety. If your employees are not getting injured, claims are not being made. And when the frequency and dollar value of claims at your company fall below your insurance providers’ expectations, your premium will decrease.