5 Steps to a Lower Workers’ Compensation Mod

Workers’ Compensation Insurance is a necessary expense for businesses, and while premiums have remained stable amid a generally hard market for property and casualty insurance, Workers’ Comp can be costly. 

Understanding how your premium is calculated can help you manage costs more effectively. One of the primary factors in determining your Workers’ Comp premium is your experience modification factor — the number that reflects your company’s claims history and directly determines what you pay.  

Also known as an experience modification rating (EMR), experience mod, e-mod or simply mod, a business’s modification factor typically is calculated annually. This can result in a dramatic rise in the Workers’ Comp premium of a company coming off a bad year for workplace injuries, but it also enables a business that has implemented a strong risk management program to quickly and significantly lower its experience mod,  

How Workers’ Compensation premium is calculated 

Your premium is based on several factors, including: 

• Payroll: the total wages paid to employees in specific job classifications; 
• Class codes: classification that reflects the risk level of different jobs; 
• Base rate: set by insurance carriers and regulated by state bureaus; 
• Experience mod: a calculation that includes a company’s claims history compared to similar businesses in its industry. 

Why your experience modification factor matters 

Your mod factor is a direct reflection of your company’s safety record and claims experience, with a score of 1.0 meaning your business is in line with industry averages. If your mod rating is above 1.0, you’re paying more in premium due to a higher-than-average number of claims. If your mod rating is below, 1.0, you’re benefiting from lower premiums resulting from fewer-than-average or less-severe claims.  

For example, a mod rating of 1.2 means you’re paying 20% more than the industry average, while a rating of 0.8 means you’re saving 20%. Managing this number effectively can lead to significant cost savings over time. 

Many businesses seek a lower Workers’ Comp premium by shopping around to different insurance brokers or carriers, but price hunting is no way to limit this significant expense. The only sure ways to control Workers’ Compensation costs are by limiting worker injuries through robust risk management and by maintaining a Workers’ Comp program that’s free of errors and overcharges.  

5 steps to a lower experience mod 

1. Understand that insurance companies don’t pay for employee injuries; they finance them for you at significant cost.  

For every dollar the insurance company pays out for employee injuries, you wind up paying $2 to $3 in lost productivity and a high experience modification factor. So why do you have Workers’ Comp? Because the law requires it and because it spreads the actual cost of employee injuries over time. 

2. Take an active part in claims management. 

Installing a defined process and regularly communicating it to employees enables them to know exactly what to do in the event of an on-the-job injury. Employees should know: 

• Which medical providers to visit; 
• What happens immediately after the medical visit; 
• The plan for the injured employee to recover at work. 

You must report an injury to the insurance company by the end of regular business hours on the day the injury occurs. Following the process protects against unnecessarily high experience mods and Workers’ Compensation premiums. 

3. To guard against errors and overcharges, have an expert at your side during your annual Workers’ Compensation audit. 

When your entire payroll is put into the highest Workers’ Compensation classification, you wind up paying more than you should. Misclassifications are common, as are other errors and omissions in the auditing process that cause employers to be overcharged. A qualified insurance agent knows how to control your costs. 

4.  Keep claims in mind during the hiring process. 

An exaggerated claim is typically the result of hiring or keeping a dishonest employee. Many employers are confused about what they can and can’t do during the hiring process. That confusion leads to fear of getting sued, which prevents the employer from doing what is legal — and necessary — to manage risk by rejecting an applicant or firing an employee for demonstrated malfeasance. 

5. Work with your agent to maximize the value of your insurance program. 

Here’s what your agent can do to insure you’re not being overcharged for the three insurance coverages that affect your business the most — Workers’ Compensation, Medical and Disability: 

• Help you construct a process that activates when an employee is injured on the job; 
• Establish procedures for managing — rather than merely monitoring — claims internally; 
• Confirm that each employee is classified properly; 
• Manage and verify premium audits; 
• Validate your experience modification factor for accuracy; 
• Review your policies to ensure they’re right for your organization; 
• Control insurance covering subcontractors; 
• Work diligently to keep your mod factor less than 1.00 by implementing a loss control program that enhances safety and reduces risk. 

Leveraging data to make informed decisions 

A thorough analysis of your experience modification factor can uncover cost-saving opportunities. Alera Group provides its clients with access to ModMaster, an industry-leading tool designed to give businesses deeper insight into their Workers’ Compensation Insurance costs.  

Using ModMaster, our team can break down the factors driving your mod factor, compare your performance against industry benchmarks and model different scenarios to help you plan ahead. This allows us to project how claims trends could affect your experience mod in future years and identify key areas for improvement, giving you a strategic advantage in controlling costs. 

Taking the next step 

Understanding and managing your experience modification factor is key to controlling Workers’ Compensation expenses. By staying proactive with claims management and safety initiatives — and by utilizing advanced tools such as ModMaster — you can create a safer workplace while keeping insurance costs in check.  

To discuss strategies for managing your mod and reducing your Workers’ Comp premiums, contact Alera Group to start a conversation. 

CONTACT A WORKERS’ COMP SPECIALIST 

About the author 

John Przybylski 
AuditRate Consultant 

The property and casualty insurance premium audit process seems often comes with a negative connotation. As an Alera Group AuditRate™ consultant, John Przybylski strives to change that by collaborating with internal and external business partners to streamline processes and achieve measurable savings on Workers’ Compensation and General Liability Insurance premiums.  

Contact information: 

• john.przybylski@aleragroup.com 
• Connect with John on LinkedIn