Workers' Compensation Experience Modification Formula Change

An important component of the cost of workers’ compensation is the experience modification. It gives the employer incentive to manage its costs through measurable loss control and claims management. Understanding experience modification and application is the foundation for controlling workers’ compensation costs.

 

The experience modification factor is computed using a formula determined by the Workers’ Compensation Insurance Rating Bureau (WCIRB). The formula is the same for all employers in all industries and is based on your payroll and claim statistics provided to the WCIRB by your insurance company. Simply put, the formula compares an individual policyholder’s claim history to expected claims of all employers in the same business. The factor resulting from the calculation is multiplied times your final premium. An experience modification of 100% is average. Good claim experience will result in a modification factor less than 100% and poor claim experience will result in a modification factor greater than 100%. Each claim used in the calculation remains in the formula for three years.

 

Not only does a low experience modification lower your costs it can also help you gain new business or new supplier relationships. Many major oil company suppliers require that their marketers have an acceptable experience modification that is average or better than average. For contractors your experience modification can be the difference in getting on a bid list or not.

 

Effective January 1, 2017 the experience modification formula has been changed by the WCIRB and the change approved by the California Insurance Commissioner. The new formula will be used on your policy renewal date in 2017.

 

The change in the formula puts more emphasis on claim frequency rather than claim severity because employers have more control over the frequency of injuries through safety and loss control than they do over the severity of the injuries that do occur. An employer with a large numbers of small claims is likely to have a higher experience modification than an employer with fewer, but larger claims. Stepping up your safety and loss control program to eliminate incidents is more important than ever.

 

For more information about workers’ compensation and controlling your experience modification contact Dan Centoni at Andreini & Company at (800) 969-2522 ordcentoni@andreini.com