Experience Modifiers Explained
The "experience mod," as it is called in the insurance industry, is a numerical expression of a company's accident and injury record compared with the average for the firm's industry. An experience mod of 1.0 means a company has an average safety record, while an experience mod of 0.80, for example, means a company has a good safety record that merits a 20 percent discount. An experience mod of 1.20 means the firm's accident rate is above the industry norm and raises a company's costs by 20 percent.
This E-mod is calculated using payroll and loss data for the oldest three of the last four years. Loss data includes paid claims as well as a "reserve" for all outstanding claims. These reserves are usually well established by the time they are used in these calculations, at least one year after the policy has expired. However, if claims are eventually settled for a different amount than reserved, the E-mod will be adjusted accordingly.