Experience Modifiers is it right?

We’re never surprised at the number of experience mod mistakes that we find daily, due to an inherent flaw in the system there’s too many people involved gathering and reporting the data or “too many cooks are spoiling the soup.” Bookkeepers and accountants are gathering information for work comp auditors who are reporting payroll to Insurance companies; claim departments reporting paid and reserved claims; wrap up administrators filing similar data; multiple state filings; mergers, acquisitions and the misappropriation of injury codes are just a few.

Don’t be lulled into a comfort zone just because your experience rating is under 1.0 odds are its incorrect.

Most contractors are limited to job bidding if their experience modifiers exceed 1.0 and this trend is now leaking into other industries. One of the most common questions is “what happened to my experience mod?”

One of the most common questions employers ask is: “Why did my mod change?”

An employer’s experience rating modification can change for many reasons, but these changes generally fall into one of three categories:

1. Changes in the Employer’s Experience

A change in an employer’s claim experience is the most common reason the mod will change. For example, if employers incur new claims, especially costly claims, they may see an increase in their mods. Conversely, if the oldest year rolling off the experience rating period has relatively poor claim experience and is replaced with a new year with relatively good experience, it is likely that employers will see a reduction in their mods. Under either scenario, the impact on a mod will depend upon the number of employees, the number of claims, and the sizes of claims.

2. Changes in the Average Industry Experience Benchmark

Experience rating compares an employer’s experience to the industry’s average, or benchmark, experience. Each year, the benchmark itself can change, which can, in turn, change an employer’s mod. Changes in the industry’s benchmark happen because:

      • The experience period changes each year. A three-year experience period is used for the industry benchmark that corresponds to the time period used in each employer’s mod. Each year, the oldest year rolls off and a new year?s information is added. In addition, the middle two years change as they mature.
      • Claim frequency has been declining for the past two decades. This means that the industry benchmark has improved significantly over time. If an employer’s claim frequency has not declined along with the rest of the industry, its mod may increase even if its experience did not change.
      • Average claim costs change over time. The average cost of a claim generally goes up over time. The increased costs, though, are partially offset by increases in payroll. These factors vary significantly by state and over time.
      • The overall average statewide mod can change over time. The overall average mod, which averages all employers in a state, is not necessarily 1.00, and it changes slightly over time. These shifts can result from targeted changes, such as when the average statewide mod drifts too far from 1.00 or from unforeseen changes in claim frequency or average costs

All of these factors are reflected in updates to the experience rating values that are included in NCCI’s annual loss cost filing.

3. Changes in the Experience Rating Plan

Finally, changes to the Experience Rating Plan itself may impact an employer’s mod. Although these changes are relatively infrequent, NCCI continually monitors the performance of the plan. A comprehensive review is currently under way.

Contact us for a free review of current or projection of future modifiers.


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