How to calculate workers' comp

Understanding mod rates

The experience modification rating measures the number of claims and the types of claims a particular company has filed with workers’ insurance. This rating accounts for the frequency and severity of actual claims from previous years, and workers’ compensation rates, or premiums, are adjusted accordingly.

Mod rates account for both the frequency and severity of past incidents. A company might have one severe claim totaling $10,000 (e.g., a workplace fatality) in a year, while another company might have five more minor claims (e.g., broken bones), totaling $10,000. While these claims might cost the insurer the same amount, they reveal a pattern of the company’s operations and safety practices. When workplace accidents happen more frequently, it’s possible that the business’s industry is inherently higher risk or that its workplace practices are less safe. A company with a history of more frequent claims might end up with a higher mod rate, or a “debit.” This means that its premium will be higher.

A company with a history of decreased or infrequent claims can receive a “credit,” a mod rate that can lower its premium. This incentivizes safer workplace practices and accident prevention efforts, which can benefit both employers and employees. In addition, a financial motivation to create safer workplace practices fosters a culture of mindfulness.

To calculate a workers’ comp mod rate, the insurance company accounts for the company’s history over time. A new company that doesn’t have a history of workers’ comp claims may receive a “neutral” mod rate of 1, which doesn’t affect a premium either way. Once that company has a policy with an insurance carrier for about a year, its claims history will be reassessed, and a debit or credit will be applied.

Incentivizing safety

The concept of workers’ compensation modification rates is fairly simple: companies with safer workplaces and fewer workers’ insurance claims typically have lower premiums. This helps create an excellent incentive for workplace health and safety.

This can also have long-term positive effects. Companies that invest in workplace safety may subsequently receive lower mod rates. Of course, accidents can happen, even in the safest of workplaces. Mod rates also account for the severity of workers’ comp claims into account. Claim frequency is typically given more weight than claim severity, meaning that a company with one big “out of the blue” accident may not pay as high a penalty as a company with many more minor incidents throughout the year. When companies have frequent accidents, it can indicate unsafe workplace practices, which can result in mod rate debits.

Why CompSource Mutual

CompSource Mutual can help you navigate the ins and outs of workers’ compensation insurance. We are skilled at calculating workers’ comp because we’ve been doing it for more than 85 years. Our team can get you the coverage you need at a fair price. Ready to get protected? Get a quote

CompSource Mutual specializes in covering Oklahoma businesses, so our team is uniquely qualified to guide you in selecting workers’ comp coverage. Learn more about how we calculate your workers’ comp rates in the auditing process.