What is a Minimum Experience Mod?

Minimum Experience Mod

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As an employer, you want to pay as little as possible in workers comp premiums.  This is where minimum experience mod comes into play.

The closer you are to the minimum mod, the less you pay in premium. Having sound knowledge of the minimum experience mod can help you keep your premiums low. We will discuss some fundamental aspects to help you.

What is the Experience Mod Factor?

Firstly, we need to understand the experience mod factor and why it is so crucial for employers. The experience factor shows your claim history in the form of a number. It is a ratio of your business’s claims compared to the cost of other companies in the relevant industry.

The experience mod can be higher or lower than the industry average of 1.0. An experience mod above 1.0 means that you are paying more than other industries in your classification. On the other hand, if it is below 1.0, you are receiving a discount on your work comp premium. Why? The lower the claim history means a lower mod, which leads to a lower premium.

Generally, if you are a business that has averaged $4,500 in premium over the last 3 years, before discounts, you qualify for an experience mod. The mod can either be credit or debit. A credit mod means you have a discounted premium, whereas a debit mod means you’ll need to pay a higher premium.

An Extensive Break Down of the Experience Mod

To better explain how a mod can affect your business, it is important that we define some terms.

  • Current mod: The current mod informs you of your current rate, which will help determine your premium for the workers’ compensation coverage. While a relevant bureau or agency will issue the official mod, you can calculate and analyze it using different information and tools. Typically these mods are produced annually to coincide with your workers compensation policy effective date.
  • Minimum mod: Many may also refer to the minimum mod as the loss-free rating. It is the lowest possible experience mod that an employer can achieve given their current industry standards, wages, expected losses, and other critical factors. It is important to note that the minimum mod varies by company.  Typically the more you pay in workers compensation premium, the lower your mod rate can be.
  • Controllable mod: It is the difference between any company’s current mod and the minimum mod. Finding the controllable mod is critical for business since it can identify how much you save by managing your losses.

What is the Mod Impact?

Every company has a 1.0 experience mod initially. In other terms, it means you are average or have a C compared to others in your industry. There is room for improvement! If your company has fewer claims than your peers, the mod will decrease.

Here are some examples of company “ABC” that shows how much a mod impacts your premium with a workers comp rate code of $1. If you would like to learn more about premium calculations, visit our “what is an x-mod” post.

Company ABC with a mod of 1.20

For instance, if a business has an experience mod of 1.20, they will have to pay around 20% above the industry average. As an example, if the business has a manual premium of $40,000 and a mod of 1.20, they will pay 20% more for an annual premium of $48,000

Company ABC with a mod of 0.90

If a business has an experience mod of .9, they will receive a discount. As an example, if the business has a manual premium of $40,000 they would receive a 10% discount and pay $36,000.

What is the Lowest Mod Possible (aka the minimum mod)?

There is no lowest possible experience mod rate set for business. Every industry has a different lowest modification rate that varies yearly.

The modification rate can also see fluctuations due to the changing operations, changing payroll, or newer rating values derived by the rating authorities. While most companies believe that 1.0 is the lowest possible experience mod rate they can achieve, that is not the case.

Nevertheless, your goal should be to get to the minimum experience mod. If you want mod comparisons or to see your minimum experience mod, talk to your work comp agent. We understand that workers comp can be difficult, so we put together reports and helpful resources to help explain that. Tell your agent to check out Mod Advisor for mod analysis assistance.

How to Reduce an Experience Mod Factor?

The best way for any business to bring down their experience mod factor is by reducing the number of claims. Companies need to have a safe working place with relevant safety measures to avoid frequent or severe injuries.

Also, try to avoid utilizing an emergency room for minor cuts or bruises if you can treat them through first aid. You can also take advantage of Experience Rating Adjustment (ERA), which gives businesses a 70% discount on the actual incurred medical only losses. However, this option is only for medical claims and is not applicable in some states. To find out more ways to get closer to that minimum mod, check out our blog post “how to reduce your x mod”.