What Are Experience Mods, and How Can They Help You Save on Workers’ Comp Premiums?

Written for Erwin Insurance Agency

Most states require employers to carry workers’ compensation insurance to protect employees from workplace accidents. Even if you’re not required by state law, it’s always a good idea to protect yourself from liabilities, especially if you work in a high-risk industry like construction or agriculture.

Like all insurance, your workers’ comp premiums are determined based on risk. If you file a lot of workers’ comp cases every year, your premiums will be higher than a company that has never filed a claim. To determine risk, insurance providers use something called an experience modification. Here’s how it works.

What’s an Experience Modification?

An experience modification—otherwise known as an experience mod, Ex-mod, or X-mod—is a percentage used to adjust your workers’ comp insurance premiums. It’s designed to incentivize employers to not file claims. Or, in other words, to provide a safe workplace for their employees.

The more workers’ comp claims you file, the higher the experience mod climbs. If you keep your employees safe and don’t file any claims, your percentage fades away. Your insurance provider will multiply your experience mod against your base premium rate to determine the final cost of your insurance.

How do Experience Mods Work?

Experience mods are based on industry averages, which are calculated by the National Council on Compensation Insurance (NCCI). They compile all the workers’ comp data and find the average number of claims for each industry. This average is the base experience mod rating.

The base experience mod rating is set at 100% or 1.00. For instance, if the average construction company filed four workers’ comp claims per year, four claims is considered a 1.00 experience mod.

To find your unique experience mod, your insurance provider will compare your workers’ comp claims against the industry average. How you compare to the industry average is your experience mod. If you file more claims than the average, your experience mod will be higher than 1.00. If you have fewer claims than the average, it’ll be below 1.00. Your base workers’ comp premium is multiplied by your experience mod to get the final cost you see on your insurance invoice.

Experience mods are calculated based on your workers’ comp activity in the last three years. So, if you filed a ton of cases two years ago but didn’t have a single one this year, you still might have an experience mod above 1.00.

Experience Mod Effect on Workers’ Comp Premiums

Experience mods can have a huge effect on your workers’ comp premiums—for better or worse. There are two types of experience mods:

• Credit mods – You filed fewer claims than average and earn an experience mod below 1.00, giving you a discount (credit) on workers’ comp insurance premiums.
• Debit mods – You filed more claims than average and have an experience mod above 1.00, adding an extra cost (debit) on your insurance premiums.

For example, if the industry average is four claims and your average is three, your experience mod would be below than 1.00 (credit). We’ll call it .80. That means you save 20% on your workers’ comp insurance right off the bat! If you have more than four claims, your experience mod would be above 1.00. Let’s say it’s 1.20. In that case, you’d pay an additional 20% on your premiums.

Here’s a quick example of experience mods in action:

As you can see, having an experience mod under 1.00 is a great way to save big money on your workers’ comp insurance.

What Businesses Are Eligible for Experience Mods?

Experience mod rules vary from state to state. In Florida, any business with more than $5,000 of coverage is eligible. If you’re looking for workers’ comp coverage in another state, contact your friendly Erwin insurance agent for more information.

To get your experience mods under 1.00, keep your workers’ comp claims to a minimum. Provide a safe work environment for your employees, post proper signage and warnings, and make sure everyone goes through safety training. The lower you can get your experience mod, the more you’ll save on your workers’ compensation insurance.