Understanding The Work Comp Experience Modification
By Scott Simmonds, CPCU, ARM, CMC

Companies with workers' compensation premiums over $5,000 have, as part of their premium, an experience modification. The "Mod" is a ratio of expected losses to actual losses. A mod of 1.0 indicates that the insured company is at industry average for workers' compensation claims. A mod of less than one (.95 for example) indicates experience that is better (lower losses) than industry average. Conversely, a mod of that is greater than 1.0 indicates greater losses than average.

Modifications can have a dramatic impact on premiums. A mod of 1.15 increases the premium a company pays by 15%. The actual calculation of the experience modification is a fairly complex mathematical formula with more than 100 variables. Errors in modifications are not uncommon.

The actual calculation of the mod includes a variety of variables. A change in any of the inputs can result in a change in the modification. If you are interested in the real mechanics of the mod calculation we invite you to view an article written by an expert on the subject. The link below brings you to an excellent info piece written by Tim Coomer, President of Specific Software Solutions. His company provides us with the software we use to annualize our client's experience modifications. Many thanks to Tim for allowing us to link to his site for this information.

Click here for the article - http://www.specificsoftware.com/articles/wcart.htm