What is an experience mod?
An experience modification is part of the algorithm that decides your premium rate for your workers’ compensation policy. The lower your experience modification rate, the lower your premium rate will be. Depending on the amount of claims and type of claims you make to your workers’ compensation insurance company, this number may raise or decrease.
On your worker’s compensation policy if you are over a certain threshold of premium a third-party company called NCCI receives data from your insurance company and propagates a mod roughly 6 to 7 months after your policy expiration date.
How are experience mods calculated?
Everybody starts with a mod of 1. One is an average mod. When your company has lower claims that what the actuaries determine you should have based upon your payroll size your mod goes down. If you have more claims than what an average company your size would, the mod goes up.
The modifier is calculated by data that your insurance company collects and sends to NCCI. Giving proper information to the insurance company at the beginning of your policy will help to keep your modifier lower.
Controlling Your Experience Mod
The risk associated with your company can cause your mod to increase. Create a plan for risk management and work safety to keep your employees safe and protect your bottom line. Having these plans in place can sometimes qualify you for a discount. Take these steps to control the safety of your work conditions.
- Make sure employees know the proper way to report an injury at work
- Train employees on proper and safe procedures for handling equipment
- Make employees aware of all risks of their job duties
- Prescreen all new hires through drug testing and background checks
Example of an Experience Mod Change
Let’s assume your company has a $20,000 work comp policy and you start out with a mod of one. If you have claims below average, and your mod goes down to .8, which is good, they’re going to take your 20,000 premium times .8 and now your new premium is going to be 16,000. The same thing happens for those companies that have an excess of claims. If you have a few bad years and your mod increases to 1.2, now the premium will increase to 24,000 a year. This is a generic example.
This is why it is important to watch your claims and ensure you have a safe work environment. In just this small example, the difference can mean $8,000 a year.
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