Do you know what your “mod” is and why it’s important for determining how much you pay for workers’ compensation insurance?
You should, because that knowledge can help you reduce your cost of work comp — or at least understand why your cost went up.
In work comp, each insured business gets its own experience modification rating, more commonly known as the “mod.” This rating, usually expressed in a number either less than, equal to or greater than 1, provides either a discount from or an addition to the rate an average business of that class of business would get.
The standard insurance rate for your type of business is multiplied by the mod to determine your actual premium. So you can see that the lower your mod, the lower your insurance premium. When it comes to your mod, lower is always better.
The complex formula for determining your mod is set by the Michigan Rating and Inspection Bureau. It takes into account various rating factors, especially your claims experience, payroll and premium. Generally speaking, the more payroll you have and the fewer claims, the lower your mod.
The most important thing to remember is that your mod is based on the cost and safety record of your business and is, therefore, under the control of your business.
One of the most important things you can do to reduce your mod from year to year is to improve workplace safety and reduce claims. The severity and frequency of your claims directly impact whether your mod rises or falls from year to year.
Some analysts believe that a history of small, recurring claims can have a greater negative impact on your mod than one large claim. Why? Because it suggests that a continuing problem exists at your business. Which is why you need to pay special attention to repeat accidents.
Taking every reasonable step to improve the safety environment of your workplace can pay off in a lower mod and the resulting lower work comp premium.