Intro to mod rates

Worker compensation rates could mean one of two things: the rates that companies pay to the insurers (their premiums) or the rates at which workers are compensated for their work-related injuries or illnesses. This article will focus on the premiums that companies pay to their insurers and explain how the premiums are calculated.

One crucial part of the formula used to create workers’ compensation insurance premium rates is the mod rate. Also known as a workers’ compensation modification rate, the mod rate allows for insurers to write policies that make sense for businesses.

A mod rate is a way to scale the cost of the premium up or down depending on company-specific factors. In other words, it is designed to help make insurance premium costs fairer based on the actual performance and history of a company. For example, a large company with a history of many workers’ comp claims might receive a higher mod rate—essentially a penalty—because it has shown a clear history of frequent claims. A smaller company that has only had one large claim over the past several years might not receive as high a rating. Severity of claims is typically not weighed as heavily as frequency of claims. A new company typically receives a mod rate of 1 because it has no prior history of workers’ comp claims, therefore the company will pay the industry’s average rate in which it does business.

Some of the different factors that influence whether a company would receive a mod rate, and how large it would be, are:

• The size of the company
• The number of years the company has existed and/or had workers’ comp claims
• The location(s) of the company
• Frequency and severity of past workers’ comp claims

A mod rate of 1, or a “unity rating,” would mean there is no change to the price of the premium for the company. This might apply to brand-new companies that do not have any workers’ comp claim history. It can also occur when a company has a change in ownership. A unity rating may also be a naturally occurring calculation in which the various factors in the calculation simply come out to 1.

A mod rate credit is a rating of less than 1. This would mean that the company receives a reduction, or discount, on its premium. A credit mod rate can occur when a company has a very safe workplace and does not incur many workers’ comp claims. The ability to receive a credit on workers’ comp insurance acts as a motivator for companies to maintain and improve workplace health and safety.

A mod rate debit is a rating greater than 1. This would mean that the company gets a multiplier added to its premium that increases the amount it must pay the insurer. This type of rating can occur for companies that have a long unsafe workplace history, and/or many workers’ comp claims. The ability to receive a debit on workers’ comp insurance can act as an incentive to create safer, less hazardous workplaces.