Calculating your Workers’ Compensation Experience Modification Factor
As a New York state business owner, it is helpful to know how your experience modification factor (Mod) rating affects your workers’ compensation premium. With this added knowledge, you can reduce and manage your annual premiums. First, it’s important to understand how your Mod is calculated and what factors are considered.
Who determines my experience modification rating?
Some business owners might wonder, “Who calculates my mod factor?” Most states use the National Council on Compensation Insurance (NCCI) but New York state has its own independent rating bureau, the New York Compensation Insurance Rating Board (NYCIRB). Your workers’ compensation premium has to be above a certain threshold specified by the state to be assigned a Mod factor. An employer qualifies for rating under this plan if:
- The payroll or other equivalent exposure reported during the last two years of the experience period produced a base premium of at least $10,000.
- The payroll or other equivalent exposure developed during the experience period of more than two years produced an average annual base premium of at least $5,000.
What factors make up an experience modification rating?
Your experience modification factor is a multiplier used to calculate your workers’ compensation premium. The Mod factor is your actual losses compared to your expected losses by industry. The formula incorporates factors that account for company size, unexpected large losses and the incidence of loss frequency and loss severity to achieve a balance between fairness and accountability.
This shows how your organization’s workers’ compensation claims experience compare to other businesses similar in size and types of jobs.
- Greater than 1.0 means your business’ claims history is worse than your peers (aka a debit Mod) and a surcharge will be added to your premium.
- Less than 1.0 means your business’ claims history is better than your peers (aka a credit Mod) and a discount will be added to your premium.
A Mod less than 1.0 directly reduces the premium amount you pay. The lower your Mod, the greater the premium reduction. For example, a modification of .75 results in a 25 percent credit or savings to the employer, while a modification of 1.10 produces a 10 percent debit or additional charge to the employer.
Your rating takes into account three years of claims history, excluding the most recent policy year. This is called the Experience Rating Period. For example, the Mod factor for a policy period beginning Jan. 1, 2020, would include claim costs for policy periods beginning:
- Jan. 1, 2016
- Jan. 1, 2017
- Jan. 1, 2018
How is my Mod rating calculated?
Your Mod factor is calculated by the NYCIRB (New York Compensation Insurance Rating Board) who use loss and payroll data for the experience rating period. Your company’s actual losses are compared to its expected losses using a formula that incorporates factors that account for company size, unexpected large losses and the incidence of loss frequency and loss severity. This achieves a balance between fairness and accountability. Expected losses are calculated using your payroll data and class and applying the Expected Loss Rate (ELR). The ELR is provided by the state’s rating bureau. These figures are also broken down into expected primary losses and expected excess losses to help balance the frequency versus severity of losses.
Understanding how your Mod is calculated is an important first step in helping to control your experience rating, its direct result on your insurance costs and opening conversations on how it can be improved through proactive loss control programs.
To understand how workers’ compensation losses at your business compare to state industry averages, contact Rose & Kiernan, Inc. here or by calling 800-242-2433. We can help to find the right carrier, solutions and support for your workers’ compensation needs.