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How is My Workers’ Comp MOD Calculated?

June 24, 2015
Adam Winters

Adam Winters

Today – we are going to get technical! This blog post won’t be for everyone, but for those of you that love math, this one’s for you!  Yes, we are talking about how your Workers’ Compensation Modification factor is calculated.  Understanding HOW it is calculated, will help you keep your premiums in check.

It’s a complicated formula but here are some ways to help you figure it out.

To determine your annual Workers’ Compensation premium, a complex formula known as the Workers’ Compensation MOD is used. This is an adjustment of your annual premium, based on your previous loss experience. The loss experience encompasses three years of losses, skipping the policy year that just ended and focusing on the three years prior. Therefore, your 2015 MOD will ignore any losses in 2014 and instead focus on 2011, 2012 and 2013.

The experience modifiers are calculated by ratings bureaus relying on information from the insurance companies and grouped by industry and then adjusted for such factors as company size, unexpected large losses and the difference between loss frequency and severity. The largest rating bureau is the National Council on Corporation Insurance (NCCI), but some states such as New York have their own services.

How is the MOD Calculated?

The formula generally used by the ratings bureaus is as follows:

A + B + (E x W) + {F x (1 – W)} / D + B + FHow-is-My-Workers’-Comp-MOD-Calculated

A = Actual Primary Losses                  E = Actual Excess Losses (T – A)

B = Ballast Value                                 F = Expected Excess Losses (C – D)

C = Expected Losses                            T = Actual Incurred Losses

D = Expected Primary Losses              W = Weighting Value

To sum this up, the calculation is the ratio of actual losses to expected losses with a stabilizing factor built into both the numerator and denominator.

What is the MOD Rate?

The industry standard is always rated as 1.0 and your rate is then calculated from this.

If your rate is a .8, than you are paying 20% less on your premium than the rest of your industry. If your rate is 1.2, then you are paying 20% surcharge.

Your premium is calculated by taking Rate x Exposure (payroll) x MOD = Premium.

Why is the MOD Important?

There are several reasons why a low MOD is important. The first being that you will be paying a lower premium, therefore saving money.

You also may find yourself being asked what your MOD rate is when you are bidding on a job. A company may reject a business that has a rate over a 1.05 for safety fears.

What Can I Do To Lower My MOD?

You can make sure the annual information submitted to your carrier is accurate and complete. Errors and omissions can cause your rate to rise.

Instill a safe work environment by training and frequent checks of worksites, create loss prevention procedures and a Return to Work program.

Work with your insurance broker to answer any questions you may have or to help you create processes to keep losses at a minimum.

Still have questions on how your Workers’ Compensation MOD is calculated?  Give Founders Insurance Group a call at 860-482-3506


Adam Winters

Commercial Lines Account Manager

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