01 — Service
Experience modification review
An experience modification is a multiplier applied to workers’ compensation premium, calculated by a rating bureau from three years of payroll and losses. A mod above 1.00 raises premium, below 1.00 lowers it. Review means auditing the underlying data for errors and correcting them at the bureau.
The mod is arithmetic performed on data the employer rarely checks. Payroll by class code and claim values come from carrier reporting to the rating bureau, and both arrive with errors often enough that a review is worth doing on every account of size. A claim reported at a reserve of thirty thousand dollars that settles for four thousand still sits in the calculation at thirty until someone corrects it.
Timing decides everything. The bureau uses a valuation date, and a reserve reduction that lands after that date does not help the mod that is about to issue — it helps the one after. Working claims in the six weeks before valuation is worth more than working them in the six weeks after, and most employers do the opposite.
Frequency is weighted more heavily than severity in most formulas. Several small claims move a mod more than one large one, which is counterintuitive to nearly every employer who has been through it. It also means a claims strategy aimed only at the biggest file is aimed at the wrong file.
A corrected mod does not just cut next year’s premium. It is a number underwriters read as a proxy for how the operation is run, and it follows the account for three years, so an error left uncorrected is paid for three times.
02 — Detail
What a mod review examines
| Input | Common failure |
|---|---|
| Payroll by class code | Payroll assigned to a higher-rated code than the work performed, inflating expected losses. |
| Claim reserves | Open reserves that no longer reflect the likely settlement value. |
| Claim status | Closed claims still carried as open at the valuation date. |
| Ownership and combinability | Related entities combined or separated incorrectly, pulling in loss history that should not apply. |
| Medical-only claims | Eligible reductions not applied where the state’s rules allow them. |
03 — Questions
Common questions
- What is a good experience modification?
- Below 1.00 means your losses have been better than average for your classification; above 1.00 means worse. The number is relative to other employers doing the same work, so a 0.95 in a high-hazard class and a 0.95 in clerical work are very different achievements.
- Can an experience mod be corrected after it is issued?
- Yes. Rating bureaus revise mods when underlying data is shown to be wrong, and the correction can be retroactive to the policy period. The practical limit is how long ago the error occurred and each bureau’s own revision window.
- How long does a claim affect the mod?
- Three years in most formulas. A claim enters the calculation after a lag, stays for three annual mod computations, then drops out — which is why a bad year is paid for well after the year ends.
04 — By state
Where this applies
State law changes how this work is done. Statutory rules for each state we write in are sourced to the issuing agency.
- California 6 sourced
- Texas 4 sourced
- Florida 3 sourced
- Georgia 3 sourced
- North Carolina 1 sourced
- Pennsylvania 2 sourced
- Arizona 1 sourced
- Nevada 1 sourced
- Illinois 1 sourced
- Ohio 4 sourced