Your Experience Modification Factor has a direct impact on your Workers’ Compensation premium. Your mod factor represents either a credit or debit that is applied to your Workers’ Compensation premium. A mod factor less than 1.0, a credit mod, means the losses are better than expected, resulting in a discounted premium. A mod greater than 1.0, a debit mod, means your losses are higher than the average for your industry.
Most experience modification factors are calculated using three prior policy years. The most recently completed policy year is excluded and the three years prior are used. For example, a mod effective 1-1-2011 would use policy data from the policies effective in 2009, 2008 and 2007. The data for the 2010 policy would not enter the “window” until the 2012 mod, when the data from 2007 would drop out.
The first $5,000 of every loss measures frequency and excess losses; an amounts in excess of $5,000, measures severity. The formula penalizes loss frequency by including all loss amounts in the calculation. The reason for this is that these types of claims can generally be controlled through proactive loss-control programs. Losses in excess of $5,000 are capped at levels that vary by state. This helps to minimize the impact of any single large claim. In the state of Maine, medical-only claims figures are reduced by 70%.
The key to controlling your insurance costs is through accident prevention and claims management. Develop an accident-prevention program for your company. Have the attitude of “Safety Comes First” on all job sites. Train all employees in safety responsibilities. Develop a Return to Work program. Implement an active claims-management program to manage outstanding reserves and focus on efficiently resolving open claims.
Contact us today for help in understanding your Experience Modification Factor and get a FREE Workers’ Compensation quote.