How the NCCI experience modification factor is calculated, why frequency matters more than severity, and practical ways to lower a mod.
The experience modification factor compares an employer’s actual workers comp losses with the losses expected for a business of its size and class codes. A mod of 1.00 is average, below 1.00 earns a credit and above 1.00 a debit — multiplied directly against premium.
Mods use three years of experience, excluding the most recent year.
Each claim is split at the split point. The part below it is primary; the rest is excess. Primary losses count in full, while excess losses are weighted down. The result: frequent small claims raise a mod faster than a single large claim.
Two values stabilize the formula. The weighting value (W) controls how much excess losses count, and the ballast (B) dampens swings for smaller employers. Both increase with the employer’s expected losses, so larger employers’ mods respond more to their own experience.
Prevent the frequency of small injuries with safety programs. Report claims promptly — medical-only claims are discounted by 70% in most NCCI states. Use return-to-work programs to keep medical-only claims from becoming lost-time claims. And check each year’s worksheet for errors in payroll, class codes and claim values.