Accidents affect business costs.
Workers’ compensation losses can lead to a higher premium by affecting a company’s experience modification.
Workers’ compensation experience modifications ( “ex mods”) are determined by comparing the actual losses a business has to the average expected losses for that type of business. The average ex mod for any business group is 100% (or 1). If an employer’s loss record is better than the average for their business group, the employer will have a lower ex mod, or a credit. For example, in the chart on the right, the first bar shows a company that had a manual premium of $100,000 based on their group average, and an ex mod of 75% (or .75) based on their loss record. As a result of their lower than average loss record, the company would only pay $75,000 in premium. However, if that same company had experienced a worse loss record than their group average, they would have a higher ex mod, or debit. If their ex mod was 125% (or 1.25), they would pay $125,000 in premium – a difference of $50,000 for one year. By preventing and actively managing claims, employers have more control over their ex mod, which, as demonstrated, can be a significant cost driver. |  |
Additional Facts:
Experience rating doesn't apply to every business. An employer qualifies for experience rating if its base premium exceeds a minimum set by its state. In general, an employer must have been insured for at least two consecutive policy years to be experience-rated. Once you have an experience rating, it must be used in calculating your workers' compensation premium.
Experience rating varies from state to state. Calculating the experience rating is often complex; different states have different rules that your insurance company must follow. Regardless of your state, the same rule applies: By setting high standards for safety and rewarding employees for preventing injuries, you will file fewer claims and thus reduce your workers' compensation costs.
