Understanding the Experience Modifier
A workers’ comp. experience modifier serves to adjust your workers’ comp. expense based on your particular workers’ comp. claims history. It is a number either above or below 1.0 that is calculated by comparing your claims against the average claims in each class code in which you have payroll. Aggregate claim amounts that are higher than the average will increase your modi-fier. Conversely, aggregate claim amounts that are lower than the average will decrease your modifier.
The experience modifier is multiplied against the standard rate, and generates either an increase or decrease in premium. For example, if an experience modifier is 0.88 and the standard premium is $10,000, the modified premium becomes $8,800. Conversely, if an experience modifier is 1.12 and the standard premium is $10,000, the modified premium becomes $11,200.
Key Point: Good claim experience over time can significantly reduce your workers’ comp. cost! We have seen experience modifiers as low as 0.62 (Wow!) and as high as 2.05 (Yikes!).
Usually three years of loss experience are used to determine the experience modifier for a workers' compensation policy. The three years typically include not the immediate past year, but the three prior. For instance, if a policy expired on January 1, 2008, the data included on the Experience modifier would be comprised of the period from to January 1, 2004 to January 1, 2007.
If you would like help in deciphering your experience modifier, or if you want to find out if you even have a modifier, please let us know.
