Experience Mod Explained: What Is Good, How It Is Calculated And How To Lower It

The experience modification factor, or mod, is one of the few parts of a workers' compensation premium that reflects a company's own history. A mod below 1.00 is a credit that lowers premium, a mod above 1.00 is a debit that raises it, and 1.00 is neutral. Because the mod is driven heavily by how often injuries happen, a pattern of small claims can matter as much as one large claim. Accurate payroll reporting and active claims management can be as important to the mod as the safety program itself.

Who calculates the mod?

Georgia uses the experience rating plan administered by NCCI, the organization that maintains workers' compensation rating data in most states. The plan's manual lists Georgia among participating states. Carriers report payroll and claims to NCCI, NCCI calculates the mod, and the mod is then applied to the policy at renewal. Companies with operations in more than one participating state may receive a single interstate mod.

What is a good experience mod?

According to NCCI's guide to experience rating, a mod below 1.00 is a credit, a mod above 1.00 is a debit, and 1.00 is unity, meaning experience rating does not change premium. A credit mod generally reflects better-than-average loss experience compared with similar employers, and a debit mod reflects worse. A new business, or one that does not meet the minimum premium or data requirements, receives 1.00. A good mod, in short, is one below 1.00 that is stable or improving.

How is the mod calculated?

NCCI compares a company's actual losses with the losses expected for employers of similar size in the same classifications. Usually the latest available three years of data are used, which typically excludes the most recent policy year. Three points matter most for owners:

1. Expected losses come from payroll. Payroll reported in each classification sets the baseline the company is measured against. Errors in payroll or class codes can distort the mod in either direction.
2. Primary versus excess losses. NCCI splits each claim at a split point set by the state. The portion below it, primary loss, carries more weight than the portion above it, excess loss. That is why several small claims could affect the mod more than one larger claim of the same total cost.
3. Reserves count. Open claims enter the calculation at their current value, including reserves (the carrier's estimate of future payments). An open claim with a high reserve can raise the mod even if it eventually settles for less.

NCCI may also issue a contingent mod when audited payroll or loss data has not been received, and revise it once the data arrives.

How can a company lower its mod?

1. Reduce claim frequency. Safety training, job hazard reviews and supervisor accountability target the injuries that occur most often.
2. Report injuries promptly. Early reporting tends to keep claims smaller, easier to manage and less likely to involve litigation.
3. Use a return-to-work program. Bringing injured employees back to modified duty can reduce lost-time costs, which are often the largest part of a claim.
4. Review open claims before the valuation date. The valuation date is when claim values are captured for the mod. Ask whether reserves still reflect each claim's status and whether claims that can be closed have been.
5. Check the worksheet. Confirm payroll, class codes and claims match your records, and question anything that does not.
6. Complete audits on time. Missing audit data can delay or distort the mod.

Why does the mod matter beyond premium?

Many owners, general contractors and public entities use the mod as a prequalification screen for contractors and service providers. A debit mod can limit bidding opportunities even when the premium impact is manageable, which makes the mod a business development issue as well as an insurance cost. Our article on workers compensation program design covers how the mod fits into a broader program.

Common questions

Is a 1.00 mod bad?

No. A 1.00 mod is neutral. It means experience rating is not raising or lowering premium.

Why did our mod go up when we had fewer claims this year?

The mod uses several years of data, so older claims can still affect it. Changes in reserves on open claims can also move it.

How long does a bad year affect the mod?

Usually for as long as that year remains in the experience period, which NCCI notes is typically the latest available three years of data.

What clients can do

• Request your current mod worksheet and review it line by line.
• Report every injury promptly.
• Put a written return-to-work program in place.
• Review open claim reserves with your carrier before the valuation date.
• Request a coverage review to see how the mod fits your overall program.

To talk through how this applies to your business, reach out to Tyler L. Gaynes.

This article offers general professional perspective and is not legal advice or a representation of coverage for any specific policy or circumstance.