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Intro to experience modification rates

In an effort to offer coverage that’s right for unique businesses, insurance carriers use mod rates. Mod rates, or workers’ compensation modification rates, are ways of factoring in company size, payroll, location, and, most importantly, workers’ comp claims history. In essence, large companies that have long histories of workers’ compensation claims may receive penalties. In contrast, smaller companies that have very few workers’ comp claims may receive no penalties or could even receive discounts on insurance premiums.

Mod rates can apply differently to large, established companies compared to small or new companies. Large companies with headquarters in multiple states could receive an “interstate mod rate.” This means that workers from all the states in which the company operates are factored into the premium price. Large companies that have been around for many years are also more likely to have a history of workers’ comp claims. On the other hand, a smaller, newer company may not incur a workers’ comp claim for many years. A small company that operates in only one state might receive an “intrastate mod rate.” Intrastate means that it only has workers in one state. Its low or reduced history of workers’ comp claims might also mean that it has a very low mod rate and could qualify for a discount.

Companies don’t receive a workers’ compensation modification rate right away; they must qualify for them over a period of time. Typically, a company needs to be actively paying into a workers’ compensation insurance plan for a certain amount of time before it can be assessed for a mod rate. Each state has its own premium “threshold,” or the total amount that a company must reach before it may qualify for a workers’ compensation modification rate.

A larger company may reach this threshold more quickly since it likely employs more workers and has a higher payroll. Consequently, larger companies will typically qualify for mod rates faster than small companies.

What is Workers' Comp

Learn more about CompSource Mutual, proudly provided workers’ compensation insurance coverage to Oklahoma businesses for more than 85 years.Discover why it’s important for businesses to obtain workers’ comp to protect workers in the case of a work-related injury or illness.

Why mod rates for workers’ comp are important

Workers’ compensation modification rates can be a powerful way to fairly customize an insurance policy and create incentives for employers. Lower rates can motivate employers to create and maintain safer workplaces to reduce claims. Efforts to improve workplace conditions can increase employee safety. A higher rate essentially penalizes companies for filing large numbers of claims. Numerous workers’ comp claims can indicate unsafe workplace conditions or other problems at a company. A high mod rate can essentially act as a multiplier and increase worker compensation rates, or premiums, for a company.

The mod rate calculation system also weighs frequent losses, or claims, more heavily than severe claims. One, large, severe workers’ comp claim—such as a fatality or a major injury—could be the result of an accident and does not necessarily indicate an unsafe workplace. Both small and large companies can incur such losses. However, smaller, more frequent claims—such as strains, slips, falls, and repetitive motion injuries—could possibly indicate an unsafe workplace that has chronic safety problems.

One way to help balance out these different scenarios is the split point rating. The split point system is like the concept of a deductible in health insurance. The insurance carrier creates a “split” between “primary losses” and “excess losses.” Any claims at or below the primary loss threshold are considered a “primary loss.” These claims are factored more heavily into the mod rate calculations. Meanwhile, anything above the primary amount is considered an “excess loss.” These losses do not factor as heavily into the mod rate calculations.

What this system does is ensure that small, frequent losses are penalized more heavily. For example, a company might have ten different claims with a relatively low total cost, all going towards the primary loss amount. On the other hand, a single, severe, costly claim might max out the primary loss amount, and then have the remainder in “excess loss.” This system helps keep employers motivated to reduce the frequency of injuries at the workplace, and as a result, reduce their workers’ comp claims.

Workers’ compensation modification rates and state policy

As with many aspects of workers’ compensation insurance, mod rate formulas change from state to state. States that administer their own plans, such as Wyoming, may have completely different mod rate systems from states that permit private plans.

The National Council on Compensation Insurance (NCCI) determines the ratings for about 13 states, including Oklahoma. This means that the NCCI is the licensed rating organization that determines factors such as the split point and interstate/intrastate mod rates. However, many states have unique mod rating systems that can work in tandem with NCCI to determine ratings. There are also several states that are “independent bureau” states, which means that they have their own ratings bureaus that determine how to calculate the mod rates. Finally, there are a small handful of states, such as Wyoming, that are considered “monopolistic states,” which means that they both administer their own workers’ comp insurance as well as their own ratings bureaus.

Why CompSource Mutual

The service, support, and expertise at CompSource Mutual set us apart. For more than 85 years, we have proudly provided workers’ compensation insurance coverage to Oklahoma businesses. We’re experienced with a wide range of businesses and industries across the state of Oklahoma and offer resources to our policyholders that you can’t find anywhere else. Access free safer workplace resources, such as instructional videos and on-site safety inspections to better protect your business’s most precious asset – your workers.

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Insurance companies translate the experience modifier into a number, or an experience modification rate (EMR). This number is based on a company’s historical cost of injuries and future risk chances. A company’s EMR is then compared to the average losses of other employers in the same state, in the same industry.

At its core, the math used in determining this is quite simple – actual losses divided by expected losses equals experience modification factor. An employer with an experience mod of 1.00, or a “unity rating,” is exactly average in its claims cost loss experience compared to businesses of similar size and industry.

A business owner has the ability to request copies of their experience rating worksheet from a designated state authority, or the National Council of Compensation Insurance (NCCI), depending on the state.

It depends what industry the company is in. The average EMR is 1.0, which means that the company is found to be no more or less risky than most other companies in that same industry. Typically, a rating under 1.0 is considered good, or relatively safe. If a rating is above 1.0, it is considered riskier than other businesses.

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