A frequent question we receive is in regards to a company's experience mod and how it affects workers compensation premium. This especially applies to restoration contractors as their employees fall into more expensive class codes.
An experience mod is a calculation used to compare your company's safety history to that of similar sized companies within the same industry. The figure is determined by taking your company's actual losses and comparing them against your company's expected losses.
The better your actual losses are, the better your experience mod calculation will be, which translates into lower premiums. If you have worse than expected losses, then your experience mod calculation will actually result in a penalization that results in higher premiums.
One important item to note in the calculation of your company's experience mod is that not all claims are created equal. Their is a very dramatic difference in frequency of claim versus severity of claims. The calculation takes into account that companies can have severe claim that was just a matter of chance. However, a history of multiple claims is viewed as something that can be controlled and the company will be penalized for that.
The experience is a credit or debit applied directly to your premium. For example, if your company has a starting premium of $50,000 and an experience mod of .75, then your company would pay $37,500 in net premium. However, if your company has a poor loss record that resulted in an experience mod of 1.25, then your final premium would be $62,500.
As you can see from this example, having a better-than-average loss record can give you a competitive advantage over other restoration contractors.
Your experience mod calculation is based off your last 4 years, excluding the most recent policy year. So if your company experiences a poor year for claims, it will affect your premium for the next four years.
Lowering your experience mod and workers comp premium can take some time. We recommend partnering with an agent that specializes in your industry that can help provide some insight into safety programs and tools that will help decrease your claims.
To find out more, please contact our office.