09/ 21/ 2004
Small-business owners have gotten used to the fact that workers’ compensation premiums are high and getting higher. You shop around for the best deal on the best policy and you think that’s all you can do. What you might not know, though, is if you pay more than $5,000 in workers’ compensation premiums each year (note that this amount varies by state), you have more control over your premium than you think.
By no means hidden but often overlooked, the experience modification factor (or “mod” for short) acts as a multiplier in calculating your premium for workers’ compensation insurance. Based on data collected over a three-year period, the mod calculates your business’ loss record using the number of work-related accidents, which weighs most heavily, the total cost of these accidents and the size of the business.
Rewarded for Safety
Experience rating was designed to encourage safety in the workplace, rewarding businesses with good safety records by lowering their workers’ compensation premium, while punishing businesses with poor safety records by increasing their premiums.
A mod of 1 means that your business has an average loss record for your industry. No adjustment to your workers’ compensation premium takes place. A mod of less than 1 reflects a better-than-average loss record, reducing your workers’ compensation premium proportionately. A mod of greater than 1 reflects an above-average loss record and means that your workers’ compensation premium will increase proportionately.
For example, a business with a 1.25 mod will pay 25 percent more in workers’ compensation premiums than businesses with a mod of 1. A business with a 0.75 mod will pay 25 percent less than the average business.
Lowering Your ModSince mods are largely determined by the incidence of injury in your business, the No. 1 way to make sure your workers’ compensation premiums stay low is to make safety a priority in the workplace. Visit the Workplace Safety section of the NFIB.com Business Toolbox Insurance area for tips on making your business safe for your employees.
If safety is already a priority in your business and your loss record is low, then the mod should work in your favor -- in theory. But because the process of calculating the mod is complex, the chance of mistake is great -- meaning that a business with a low or average loss record could be unduly punished with larger workers’ compensation premiums.In charge of calculating mods in most states is the National Council on Compensation Insurance, a non-profit rating and data management organization. While the NCCI handles mods in most states, California, Delaware, Hawaii, Indiana, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Pennsylvania, Texas and Wisconsin have their own rating bureaus.
These rating organizations receive claim and audit information from a business’s current or past insurance carrier, calculate the mod for the policy year and then submit a worksheet back to the insurance company.
While the report is intended for the insurance company, the NCCI recommends that businesses review the worksheet themselves to check for errors, paying special attention to industry classification codes, payroll and losses. Your insurance carrier can supply the most recent worksheet to you. If you find a mistake on the worksheet that could be affecting your mod, contact both the insurance carrier and the rating bureau for guidance.
