A worker’s compensation experience modification factor, also known as an “experience mod” or “mod factor,” is a number used by insurance companies to calculate the premium for a business’s worker’s compensation insurance policy. It is based on the business’s historical claim experience and is intended to reflect the risk or safety level of the business’s operations.
The experience modification factor compares the actual losses (or claims) experienced by a business with the expected losses for similar businesses in the same industry. It takes into account both the frequency and severity of past claims. The formula for calculating the mod factor involves comparing the business’s actual losses to the expected losses, adjusting for the size of the business and industry standards.
The mod factor is typically expressed as a percentage, where 1.00 is considered the industry average. A mod factor greater than 1.00 indicates that the business has had more claims or more severe claims than expected, and as a result, the business’s worker’s compensation insurance premium will be higher than average. Conversely, a mod factor less than 1.00 suggests better-than-average loss experience, leading to lower insurance premiums.
For example, if a business has a mod factor of 1.20, it means their worker’s compensation insurance premium will be 20% higher than the standard premium. On the other hand, a business with a mod factor of 0.80 will enjoy a 20% discount on their premium.
The experience modification factor is a tool used by insurance companies to incentivize businesses to prioritize safety measures and reduce workplace injuries. By encouraging businesses to maintain a safe work environment and effectively manage claims, insurance companies aim to reward those with lower mod factors and, in turn, lower insurance costs.
It’s important for business owners to understand their experience modification factor and actively work on reducing it through effective safety programs, risk management practices, and prompt claims management. By improving safety records and minimizing claims, businesses can potentially reduce their worker’s compensation insurance costs over time.