File a Claim

experience modifiers

What are they and why do you care?

Experience modifiers are easy to explain with a simple analogy. Let's say you have two identical companies. They are based in the same general area of town, have the same number of employees, do their business in the same industry, and have about the same revenues and number of clients.

If Company A controls its losses (has fewer injuries on site, for example) far better than Company B, over time, Company A's premiums will go down relative to Company B.

The exact formula for figuring out how much an experience modifier affects a company's premium is pretty complicated, but you don't have to know much more than the basics to start planning ahead and reaping the rewards.

First of all, the experience modifier formula considers losses over a three-year period. Losses are defined as more than just the amount actually paid out in a claim - they also include incurred losses, which takes into account such costs as future indemnity payments and bills for medical treatment.

Furthermore, the three-year period excludes the current policy period, giving the insurance company time to close most claims and more accurately estimate the cost of the open claims that will continue for more than a year.

The last important piece of the puzzle is claim frequency. If Company B has 20 injuries costing $5,000 a piece, they will suffer a higher penalty than Company A, which has 2 injuries of $50,000 each. This is because a history of frequent losses indicates an unsafe workplace, and therefore the companies who have them are seen as a higher risk.

At it's most basic, the experience modifier calculation compares actual losses by any individual employer with the average employer in the same industry and state with the same amount of payroll.

What does this mean to the business owner? A giant financial incentive for improving safety in the workplace. The fewer the claims and losses, the lower the premiums will be, calculated against an average for same-size companies in the same industry and state.

If you want to talk about your workers' compensation and how to save money on your premiums, give us a call at 512-476-6566.