By Chase Bassett, CPCU, Risk Advisor

Workers' Compensation is a critical aspect of ensuring the well-being and protection of employees in the workplace. However, the insurance cost of your plan can vary based on the number of claims for your company.

One key factor that directly impacts the cost of insurance is your workers' comp experience modification rate – also known as the mod rate or e-mod rate. This number measures the expected claims for a company of your size with the number of submitted claims.  

Business owners need to understand how the Workers’ Compensation experience modification rate is calculated, and actionable steps you can take to reduce your mod rate – and thus the financial burden of Workers' Compensation insurance.  

Contents

• What is the Workers’ Compensation Experience Modification Rate
• Calculating Your Experience Modification Rate
• Reducing Your Workers’ Compensation Experience Modification Rate

What is a Workers’ Compensation Experience Modification Rate?

The Workers' Compensation experience modification rate is a numerical factor used by insurance companies to calculate an employer's workers' compensation insurance premiums.  

The rate is based on your business’ past Workers' Compensation claims and is used to determine if your premiums should be increased or decreased. This comparison is known as the "expected losses" vs. "actual losses." If your company’s actual losses are higher than expected losses, your mod rate will go up – and likely so will your premiums.

Your mod rate is often an indication of the safety culture at your business, meaning businesses with a lower mod rate are considered less risky and may be eligible for lower premiums.  However, it is solely an indication and should never be used as a full measure of safety within an organization. If you have a high mod rate, you’ll pay higher premiums. But you should also focus on reducing your rate – not only for the cost associated, but also for the safety of your employees.  

Consider partnering with an insurance provider who can offer resources and support to help employers reduce your mod rate and control your workers' compensation costs. At Ellerbrock-Norris, we have the ENCORE Workers’ Compensation program, which includes implementing a culture of working safely, pre-injury and post-injury action plans, ongoing claims management, Recover at Work Programs, annual Experience Mod analysis, and more.

Calculating Your Experience Modification Rate

The National Council on Compensation Insurance (NCCI) dictates your workers’ comp experience modification rate, though some states require different ratings factors that can impact your final mod rate. The NCCI uses a formula based on your company's actual loss compared to the average loss for similar companies in your industry.  

The formula uses three primary factors:

• Payroll: The total amount paid to employees over a specified period.

• Claims history: The number and severity of workers' compensation claims, as well as the incurred costs of those claims.

• Expected loss rate: The average loss rate for a specific industry, adjusted for the size of the company and the type of work performed.

The formula generates your official mod rate. A rate of 1.0 is considered average, meaning your loss experience is on par with the industry average. A rate below 1.0 means you’ve had a better-than-average loss experience, leading to lower premiums, while a rate above 1.0 indicates a higher risk and potential for future claims, resulting in higher premiums.

Reducing Your Workers’ Compensation Experience Modification Rate

Lowering your workers' compensation experience modification rate requires a strategic approach focused on improving workplace safety, reducing the frequency and severity of workers' compensation claims, and effectively and quickly managing claims when they do occur.  

We help our clients create a culture of working safely based on your specific needs. If you don’t have a robust safety program in place, consider focusing on the culture at your business, including:

• Establish a safety program: Implement a comprehensive safety program that includes regular employee training, clear safety guidelines, and hazard identification and mitigation. Encourage employee participation and engagement in safety initiatives to foster a culture of safety in the workplace.

• Conduct regular safety inspections: Conduct routine inspections to identify potential hazards, correct them promptly, and ensure compliance with safety regulations. Regular inspections help prevent accidents and reduce the likelihood of claims, while also letting your employees know the importance of safe practices.

• Implement Recover-at-Work programs: Develop and implement effective programs that facilitate the prompt and safe return of injured employees to the workplace. These programs can minimize the impact of claims on the Workers' Compensation experience modification rate by reducing claim costs and lost productivity.  Remember: Medical-only claims are reduced by 70% when calculated into the experience mod factor.  

• Focus on risk management: Identify the specific areas of your business that pose the highest risk for accidents or injuries. Develop risk management strategies, such as implementing additional safety measures or providing specialized training, to minimize those risks and improve your overall safety record.

• Prompt reporting and investigation of claims: Encourage employees to promptly report any workplace injuries or incidents. Investigate claims thoroughly to determine the root causes and take corrective action to prevent similar incidents in the future.

• Partner with a quality workers' compensation insurance carrier: Choose a workers’ compensation insurance provider that offers quality coverage, proactive claims management, and support for workplace safety initiatives. A good carrier can offer resources and support to help you reduce your mod rate and control your workers' compensation costs.

• Track and analyze your loss data: Monitor and analyze your loss data regularly to identify trends and patterns in your claims history. Use this information to implement targeted risk management strategies that address the specific areas of your business that contribute to the highest claim costs.

The Bottom Line

The workers' compensation experience modification rate is a critical factor in determining your insurance costs. Understanding the factors that contribute to your mod rate and taking proactive steps to reduce it can help you control your workers' compensation costs and improve your bottom line.  

By implementing a comprehensive safety program, focusing on risk management, partnering with a quality insurance carrier, and engaging an experienced consultant, you can reduce your mod rate and create a safer and more productive workplace for your employees.

The Ellerbrock-Norris ENCORE Safety Network is a great starting point for your firm. Not only will we hold in-person training with your safety professionals, we’ll also provide regular education, including webinars, videos and more.  

Find a trusted safety partner and Workers' Compensation advisor today to help control your Experience Modification rate and control your insurance premiums.

‍