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E-Mod and How It Affects Your Workers Comp Premiums

What is an experience modification factor?

Experience modifier (mod) is a multiplier applied to the premium of a qualifying policy and provides an incentive for loss prevention. The mod represents either a credit or debit that is applied to the premium before discounts. If your company’s loss experience is more costly on the average than other company’s loss experience in your industry, the result is a debit mod, or surcharge, on premiums. If your company’s experience is less costly than the industry average, you will receive a credit mod, or discount, on your premium.

Who determines experience ratings?

The National Council on Compensation Insurance (NCCI), based in Florida, computes experience ratings for all businesses and industries. The same factors are used to calculate each employer’s experience modification regardless of which insurance company provides coverage. The experience modification stays with the business even if the business is sold.

Who qualifies?

All employers whose premium before discounts averages $4,000 or more a year for a three-year period are eligible for an experience modification rating. Approximately 90 percent of workers’ compensation premium dollars come from experience rated policies. Employers with less than $4,000 in premium are not experience rated because of their low exposure to claims – on average they have claims every 10 to 20 years – thus, they should not be rewarded nor penalized. Employers who do not qualify for experience modifications pay the basic industry rate for their coverage, less any applicable discounts.

What years are included?

Experience modifications are based on claims costs for a three-year period. An interval year is incorporated between that rating year and the three-year period. The year previous to the current year is excluded because ultimate claims costs are not known and premium has not been audited.

How is the modification figured?

• The experience modification is determined by comparing actual losses to expected losses for the experience period based upon the employer’s industry. In other words, clerical employees are compared only to other clerical employees; a roofing business is compared only to other roofing businesses.

• The number of man-hours worked is used to indicate the employer’s audited premium dollars, since an employer with 20 employees would be expected to have more claims than an employer with two employees. For example, a roofing business is only compared to other roofing companies with approximately the same gross premium amount.

• The formula adjusts the actual losses used so that frequency is given greater weight than the severity of an injury or illness. For example, six claims that occur over a three-year period totaling $20,000 have a greater impact against the experience mod than one claim in three years totaling $20,000. Again, both industry and business size are considered.

• Claims with zero costs are not included in the experience modification calculation.