Let’s say you’re a business owner in Johnson City, Tennessee. One of your valued employees was just injured on the job. Now imagine not having workers compensation insurance. Could you be sued? Could you lose your business? Workers compensation insurance is a necessity for your business. However, many businesses end up overpaying on their workers compensation premiums.
How much you pay on your workers comp premium is determined by your experience modification factor. Though it is very easily controlled, approximately 40% of businesses have an incorrect experience modification factor. Here is a brief overview of what the experience modification factor is and how it works. This can be a complicated subject, so if you have additional questions, please contact our East Tennessee insurance office. We would be happy to help answer any questions you might have.
What is the experience modification factor? The experience modification factor determines the premium you pay for workers compensation insurance. It is based on the losses your insurance company has experienced from your business. The workers compensation experience modification factor is done by the National Council on Compensation Insurance (NCCI). They get data from all the states they work in, including Tennessee and Virginia, to create an experience modification factor (mod). A mod of 1 is the average of all the data collected. Thus, if your mod is above 1, you are worse than the average in your profession in terms of claims and safety. However, if your mod is below 1, you are better than average.
Your Mod and Your Premium
If your manual premium is $50,000 for your profession, but you have an experience modification factor of 1.5, you will multiply 1.5 times $50,000 to get your new premium. However, if you are better than average and have, for example, a mod of 0.80, you will multiply 0.80 by $50,000 to calculate your premium.
The experience modification factor takes into account the class codes that you have, and the payroll that you had in those class codes. The higher your risk and the higher your expected losses, the lower your mod can be if you don’t end up with any claims. The rates for roofers or loggers are quite high. If you have $100,000 in payroll, the insurance company is expecting you to have some claims. Therefore, if you end up not having any claims, you will have a low mod. However, if an office has $100,000 of payroll, the insurance company is not expecting you to have many claims at all. Thus, an office will have a low mod. However, the office’s mod probably won’t be as low as someone doing logging or roofing with $100,000 in payroll if they also do not end up with any claims.
Those are some of the basics of the experience modification factor for your workers compensation insurance. There are a number of details dealing with this topic, so we would be happy to sit down with you and give you a free report on your mod. Your experience modification factor is one of the few things in insurance that you can control and manage very easily. Contact our Tri-Cities, Tennessee insurance office at (423) 292-4142, and we will answer any of your questions and help you make sure your mod is correct.