The experience modification rate, or “mod,” adjusts an employer’s workers compensation premium based on its own claim history. A rating bureau compares the employer’s actual losses with the losses expected for a business of its classifications and payroll. A mod of 1.00 is average. A 0.85 mod cuts the premium by 15%; a 1.25 mod raises it by 25%.
In most states the National Council on Compensation Insurance (NCCI) calculates the mod. Some states, such as California, New York and Pennsylvania, use their own bureaus with their own rules. The experience period is usually three policy years, ending a year before the mod’s effective date, so a bad year affects pricing for three renewals.
Only employers above a state’s premium threshold get a mod. Smaller employers are rated at 1.00.
How it shows up in an agency
A contractor prospect sends a mod worksheet showing 1.32. The producer knows that many carriers’ appetite guides cap the mod they’ll accept, so the list of carriers to approach just got shorter. The mod also matters outside insurance: general contractors and public owners often ask bidders for their EMR, and a high one can cost the client work.
Common confusion
- Frequency hurts more than severity. NCCI’s formula weighs the first part of each claim more heavily than the rest, so several small claims raise a mod more than one large claim of the same total.
- The mod isn’t the carrier’s choice. The bureau calculates it; the carrier applies it. Disputes go to the bureau, usually over wrong payroll or class codes, or claims reserves that were never reduced.
- Ownership changes can carry the mod over. A buyer can inherit the seller’s experience. Check the bureau’s ownership-change rules.
Related: class codes and our workers comp carrier page.