Understanding Your Modification Factor
Who Calculates the Mod Factor?
Most states use the National Council on Compensation Insurance (NCCI) to collect data and calculate the experience modification factor. NCCI is a private corporation funded by member insurance companies.
However, the following states have their own independent rating bureaus that are separate from the NCCI:
• California
• Delaware
• Indiana
• Massachusetts
• Michigan
• Minnesota
• New Jersey
• New York
• North Carolina
• Pennsylvania
• Wisconsin
* Texas is in the process of transferring from an independent bureau to the NCCI system.
How is a Mod Calculated?
The process of calculating the experience modification factor is complex, but the underlying theory and purpose of the formula is straightforward. Your company’s actual losses are compared to its expected losses by industry type. The formula incorporates factors that account for company size, unexpected large losses and the incidence of loss frequency and loss severity to achieve a balance between fairness and accountability.
Understanding your company’s mod and the data used to obtain it helps you identify ways to minimize your workers’ compensation premium.
How does my mod affect my premiums?
The mod factor represents either a credit or debit that is applied to your workers’ compensation premium. A mod factor greater than 1.0 is a debit mod, which means that your losses are worse than expected and a surcharge will be added to your premium. A mod factor less than 1.0 is a credit mod, which means losses are better than expected, resulting in a discounted premium.
How do your losses compare?
The final mod calculation compares your actual primary and excess loss figures to those expected for a company of the same size and industry type. There are advantages to understanding how workers’ compensation losses in your business compare to state industry averages.
A key to understanding your workers’ compensation premium is the experience modification factor, also known as your mod. Understanding your company’s mod and the data used to obtain it helps you identify ways to minimize your workers’ compensation premium.
