An experience modification factor compares your Workers’ Compensation insurance claims experience (prior year’s losses and payroll) to other employers of similar size operating in the same kind of business.
Average Experience Modification = 1.00
If you are the industry average, your experience modification factor is a 1.00.
Above Average Experience Modification Example= .80
If your experience is 20% better than average, your experience modification factor would be .80. You would receive a 20% credit applied to your premium.
Below Average Experience Modification Example= 1.20
If your experience is 20% worse than the average employer, your experience modification factor would be 1.20. That would mean a 20% surcharge being applied to your premium.
A mod calculation is very complex but the purpose is fairly straightforward. Your company’s actual losses are compared to its expected losses by industry type. The formula incorporates factors that account for company size, unexpectedly large losses, and the incidence of loss frequency and loss severity to achieve a balance between fairness and accountability. Remember, the “split point limit” , which is the first $16,500 of any loss, is weighed more heavily in the calculation.
Controlling your experience modification factor
In addition to insuring that all the data included in your calculation is correct, improving your safety practices will help control Workers’ Compensation insurance costs. Try the following:
- Develop a formalized safety program with written procedures including personal protective equipment guidelines.
- Conduct a job hazard analysis for key positions.
- Create a corporate culture of safety. Top management should lead by example.
- Start new employees with a safety discussion as part of your orientation process.
- Reinvest in experienced employees. Develop an ongoing safety training program to keep experienced workers engaged.
- Stay on top of trends and emerging issues by reviewing your claim history on a regular basis.
- Commit to a formalized Recovery-At-Work program to reduce the impact from lost time claims.