This book will help you to understand: business risks and threats caused by a high or rising Experience Mod; how the Experience Mod is calculated; how injury costs are “financed” by the employer through the impact of the Experience Mod; strategies to manage the Experience Mod toward the minimum to reduce costs

1. UNDERSTANDING AND MANAGING YOUR WORKERS’ COMPENSATION
EXPERIENCE MODIFICATION FACTOR
1
UNDERSTANDING AND MANAGING
Your Workers’
Compensation
Experience
Modification
Factor
A publication of:

2. 2 UNDERSTANDING AND MANAGING YOUR WORKERS’ COMPENSATION
EXPERIENCE MODIFICATION FACTOR
SUMMARY
The Experience Modification Factor
(“Experience Mod”) is an integral part of the
final cost of workers Compensation coverage. It
is a method for tailoring the cost of insurance to
the characteristics of an employer, but it also
gives the employer the opportunity to manage
its own costs through measurable and
meaningful cost saving programs.
This book will help you to understand:
 The business risks and threats
caused by a high or rising
Experience Mod
 How the Experience Mod is
calculated
 How injury costs are “financed” by
the employer through the impact of
the Experience Mod
 Strategies to manage the Experience Mod toward the minimum to reduce costs

3. UNDERSTANDING AND MANAGING YOUR WORKERS’ COMPENSATION
EXPERIENCE MODIFICATION FACTOR
3
UNDERSTANDING EXPERIENCE RATING
The Experience Mod is a fundamental component
of the final cost of workers’ compensation
insurance. For almost all employers, the Experience
Mod will have a significant influence on the
premium charged for Workers Compensation
coverage.
The Experience Mod is a method for adjusting the
cost of insurance to account for the unique
characteristics of an individual employer. There are
many factors that determine how an employer’s
Experience Mod is calculated. The primary
consideration is the employer’s payroll and loss
data. In addition, employers are compared to like
or similar businesses. Roofers are compared to
roofers and plumbers are compared to plumbers.
Finally, the hazards of the job are taken into
account in determining the final rating.
How to read your mod?
Take the worksheet and fold it in half
vertically. The left side is what the insurance industry expects to happen to your
company. This is based on your unique data. The right side is what actually
happened to your company during the policy period included in the
worksheet. When the right side (actual) is greater than the left side (expected),
your Mod will be over a 1.0. When the right side (actual) is lower than the left
side (expected) your mod will be below a 1.0.
The Experience Mod has strategic value to an employer’s business because it gives individual
employers some influence over the final premium they pay. An employer with better than
average costs receives a credit, and an employer with worse than average experience carries a
debit rating.
Why is this significant?
Employers can control their costs by managing their Experience Mod.

4. 4 UNDERSTANDING AND MANAGING YOUR WORKERS’ COMPENSATION
EXPERIENCE MODIFICATION FACTOR
RISKS AND THREATS TO YOUR BUSINESS
By taking a proactive approach to the management of your Experience Mod, you can make your
company more competitive.
Here is an example of how two companies in the same business with the same amount of payroll
can pay significantly different Work Comp insurance premiums.
Company A – Worse than Average Injury Costs
Manual Premium $100,000
Experience Mod 1.50
Standard Premium $150,000
Company B – Better than Average Injury Costs
Manual Premium $100,000
Experience Mod .70
Standard Premium $70,000
In this example, Company A and Company B both have payrolls of $1,000,000. Company A’s
“Net Cost” is 15% of payroll ($150,000), whereas Company B’s “Net Cost” is 7% of payroll
($70,000).
What’s significant about this?
You may be competing on the same job against competitors with higher or lower
costs. When this is the case, the key question is which company is more likely to
be successful when competing for the same contract, job, or business?
Many municipalities, general contractors, and other businesses are requiring that an employer
maintain an Experience Mod of 1.0 or below to bid on jobs or contracts. In some cases, you may
not even be allowed to compete for business if your Experience Mod is greater than 1.0.
What do you think this means in terms of the risk to your business?

5. UNDERSTANDING AND MANAGING YOUR WORKERS’ COMPENSATION
EXPERIENCE MODIFICATION FACTOR
5
WHAT EMPLOYERS NEED TO KNOW ABOUT
HOW THE EXPERIENCE MOD IS CALCULATED
Most employers do not understand how their
Experience Mod is calculated, so they are not
empowered to intervene to improve the Mod.
Information is power, and the more you
understand, the more control you have over
your costs.
The Experience Mod is calculated using three
years of payroll and loss information. The most
recent policy year is not used. Let’s use the
example of an Experience Mod calculated on
January 1, 2012. In this case, the calculation
would be based on data from the following
policy periods:
 January 1, 2010 – January 1, 2011
 January 1, 2009 - January 1, 2010
 January 1, 2008 – January 1, 2009
Because three years of data are included, claims that occur today will affect you for years to
come.

6. 6 UNDERSTANDING AND MANAGING YOUR WORKERS’ COMPENSATION
EXPERIENCE MODIFICATION FACTOR
FREQUENCY VS. SEVERITY OF CLAIMS
Greater weight is given to claim frequency than to claim severity, so a greater number of smaller
claims can have a bigger impact than one large claim.
Claims Cost per Claim Total Losses
Company A 1 $50,000 $50,000
Company B 10 $5,000 $50,000
Companies with higher frequency of claims will generally have a higher Experience Mod.

7. UNDERSTANDING AND MANAGING YOUR WORKERS’ COMPENSATION
EXPERIENCE MODIFICATION FACTOR
7
EXPERIENCE RATING ADJUSTMENT PLANS
For those States that have approved the
Experience Rating Adjustment Plan, Medical
Only claims are reduced by 70%. This provides
an incentive for employers to return employees to
work before indemnity payments are earned and
paid.
The following States have approved the
Experience Rating Adjustment Plan as of
June, 2010:
State Approved
Alabama 09/01/1998
Arkansas 01/01/1999
Arizona 04/01/1999
Connecticut 07/01/1998
District of Columbia 10/01/1998
Florida 07/01/1998
Hawaii 05/01/1999
Idaho 07/01/1998
Illinois 07/01/1998
Indiana 07/01/1998
Kansas 07/01/1998
Kentucky 03/01/1999
Maryland 07/01/1998
Maine 07/01/1998
Michigan 09/01/1998
Minnesota 01/01/1999
Mississippi 09/01/1998
Montana 01/01/1999
North Carolina 04/01/1999
Nebraska 07/01/1998
New Hampshire 10/01/1998
New Mexico 01/01/2011
Nevada 07/01/1999
Oklahoma 05/01/1999
Rhode Island 07/01/1999
South Carolina 11/01/1999
South Dakota 01/01/1999
Tennessee 03/01/1999
Utah 06/01/1999
Virginia 10/01/1998
Vermont 01/01/1999
Wisconsin 07/01/1998

8. 8 UNDERSTANDING AND MANAGING YOUR WORKERS’ COMPENSATION
EXPERIENCE MODIFICATION FACTOR
THE VALUATION DATE
Employers often think that the most important date is the Renewal Date, but the Mod is
calculated based on data that is usually reported six months prior to Renewal. This is referred to
as the “Valuation Date.”
Why is the Valuation Date significant?
Claim reserves count the same as paid claims, so if you can lower a reserve, you
can lower the Mod. The ability to do so is time-sensitive - it is almost impossible
to have an impact after the Valuation Date.
This is an example of the Valuation Date for the three previous policy periods (not counting the
most recent) for a policy effective on January 1, 2011. To understand how the Experience Mod
will be affected, you must look at Reserves going all the way back to the policy in effect in 2006.
Policy Period Valuation Date
01/01/08-09 07/01/10
01/01/07-08 07/01/10
01/01/06-07 07/01/10

9. UNDERSTANDING AND MANAGING YOUR WORKERS’ COMPENSATION
EXPERIENCE MODIFICATION FACTOR
9
HOW THE EXPERIENCE MOD TRANSFORMS
YOUR WORK COMP POLICY INTO A
“FINANCING” MECHANISM
Employers that
proactively manage
their Experience Mod
can realize substantial
cost savings.
This is an example of
an employer with a 1.45
Mod. The lowest Mod,
if they had no losses,
would be .66. The
employer has “control”
of 79 Mod Points.
Look at the potential
savings if the employer
can manage their Mod. This is far greater than any credit provided by the insurance company.
The three year cost is cumulative. For example, in the example below, with the Arizona (AZ)
claim of $12,712, the employer will pay back approximately $20,160 over the three-year period
the claim affects the Mod. This claim alone accounts for just over 3 Mod Points.
Also, look at the two Tennessee claims. Notice than one is Medical Only and one has $100 in
indemnity payments. The second Tennessee claim is reduced by 70%. Look at the difference in
the ultimate cost.
Specific Loss Sensitivity Analysis
Premium cost estimates based on manual premium of $200,000.
State Date Actual Loss Limited or
Adjusted
Mod w/o
Loss
Impact on
Mod
Premium Costs
1yr 2yr 3yr
Itemized/Large Losses
CO 06/05/2004 $90,443 $90,443 1.3272 0.1193 $23,860 $47,720 $71,580
TX 09/14/2006 $32,883 $32,883 1.3907 0.0558 $11,160 $22,320 $33,480
AZ 03/01/2004 $12,712 $12,712 1.4129 0.0336 $6,720 $13,440 $20,160
TX 06/17/2006 $12,442 $12,442 1.4132 0.0333 $6,660 $13,320 $19,980
FL 10/01/2004 $7,556 $7,556 1.4186 0.0279 $5,580 $11,160 $16,740
TN 07/15/2006 $6,300 $6,300 1.4200 0.0265 $5,300 $10,600 $15,900
TN 07/14/2006 $6,200 $1,860 1.4386 0.0079 $1,580 $3,160 $4,740
Used with permission from Specific Software Solutions.
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
Average
Mod
1.00
Current
Mod
1.45
Minimum
Mod
0.66
Controllable
Mod
0.79
Premium
Used with permission from Specific Software Solutions
Mod Impact on Premium Analysis

10. 1
0
UNDERSTANDING AND MANAGING YOUR WORKERS’ COMPENSATION
EXPERIENCE MODIFICATION FACTOR
WHAT CAN YOU DO TO DRIVE DOWN INJURY
COSTS?
With few exceptions, employers will pay for their
workplace injury costs. In many instances, employers
will actually pay back more than the final injury cost.
Traditional loss control measures such as workplace
inspections and training are necessary, but not sufficient
and many employers feel there is nothing they can do to
improve their outcomes. This is not the case! Put aside
your doubts and skepticism and engage in processes that
will improve your outcomes.
 Injury Prevention: Preventing injury is the first step.
Traditional loss control is necessary, but employers
need to take additional steps.
 Hire Employees Fit for the Essential Job
Functions: Hiring an employee that is not fit for the essential functions of the job will likely lead to
an injury. This is also known as “hiring a claim.” There are legal steps an employer can take to be
more confident the employee is fit and can perform the job safely.
 Address HR Issues Before the Injury Occurs: A disgruntled or unhappy employee has more
injuries and is difficult to return to work. Address problem employees before they enter the Work
Comp system.
 Report Injuries Promptly: Studies have shown that prompt injury reporting reduces the cost of
claims.
 Communicate with Medical Providers: Employers should communicate directly with the
medical provider to accommodate an injured employee’s return to work.
 Establish Stay-At-Work and Return-To-Work Programs: Employees who stay at work or
return to work, even with restrictions, recover faster and are less likely to malinger. Return
employees back to work as soon as possible, and modify their duties, if necessary, to make their
return possible.
 Train Front-Line Supervisors on How to Manage Injured Employees: Front-line supervisors
play a key role in managing the injury and recovery process. If there is a good relationship
between the injured employee and the supervisor, then you will get better results.

11. UNDERSTANDING AND MANAGING YOUR WORKERS’ COMPENSATION
EXPERIENCE MODIFICATION FACTOR
1
1
Summary
There is no denying the link between a company’s Experience Mod and its competitiveness.
Your Experience Mod must be managed to remain competitive and to capture more business
opportunities.
To learn more about how your Experience Mod is calculated and the specific
steps you can take to reduce it, contact D’Camera Group for a free consultation.