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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.

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Types of mod rates

There are two types of experience modification rates that are issued depending on where the company is located.

  • Interstate mod rates are when a company has “exposure” in two or more states. This typically applies to larger companies that have offices or locations in multiple states. This means that the insurer considers the payroll and workers’ comp claim history from employees in both states.
  • Intrastate mod rates are when a company only has “exposure” in one state, meaning that it is based out of only one state and has employees in just that state. This means that the insurer considers the payroll and workers’ comp claim history in just one state.

Mod rates for workers’ comp may also have different statuses depending on when they are issued.

  • A preliminary mod rate means that the insurer does not yet have all the final, approved rating values from the state. The prior approved rating value will be used to calculate the mod rate.
  • A final mod rate is the actual mod rate that is assigned to the company.
  • A contingent mod rate occurs when the insurer expects to audit the company or get updated information.

Insurance companies regularly conduct workers’ comp audits for policyholder businesses. When these audits occur, the insurance carriers request updated information about the company, which may precipitate a change in the mod rate.

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CompSource Mutual has served Oklahoma businesses – large and small – for more than eight decades. Our expertise spans hundreds of industries – so our team knows how to get you coverage that makes sense at a fair price. CompSource Mutual offers policyholders valuable risk control resources to help protect Oklahomans on the job. From safety videos to on-site inspections, you can access help to reduce your business’s risks. Our team is standing by to support you with top-notch service and coverage so that you can focus on doing what you do best.

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All employers who’s premium (before discounts) averages $4,000 or more a year for a three-year period are eligible for an experience modification rating. Approximately 90 percent of workers’ compensation premium dollars do come from experience-rated policies. However, companies or employers who have low or no exposure of claims, their premiums will not be experience rated and will typically pay the standard industry rate for their coverage.

It depends the industry in which a business operates. For low-risk industries, a mod rate of 1 could be considered high. For higher-risk industries, anything over 1 could be considered high. However, the rate assigned is unique to each company because it also accounts for factors outside of industry risks. Claims history and employee count are also relevant variables in determining e-mod rates. Connect with an experienced workers’ compensation underwriter to understand what makes sense for your business.

Insurance companies may provide a company with their lowest experience modification if the company has experienced no claims and no losses over a specified amount of time, typically being three years. This rating is often referred to as the minimum modification rate or loss-free rating.

Yes, it is. An experience mod rate is a rating assigned to a workers’ comp insurance policy that affects the final cost of the insurance premium for the employer. A workers’ comp impairment rating is a completely different kind of rating that is assigned to the worker – not the business. It rates the overall level of impairment that the worker has sustained due to a work-related injury or illness. This impairment rating is then factored into the amount that they may receive in workers’ compensation disability payments.

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