Unbeknownst to many charter schools, their experience modification factor is a critical component of their worker’s compensation premium.   Understanding where this number comes from and how it is calculated is a potent tool to help charter schools minimize their worker’s compensation premiums.
An experience mod calculation is provided in most states by the NCCI (National Council on Compensation Insurance).  Every year this group adjusts your charter school’s mod factor either up or down, and your worker’s compensation premiums are adjusted accordingly.

How is an Experience Mod Calculated?

While we won’t go through the entire complicated formula for calculating a charter school’s experience mod, we still feel it’s essential to provide the underlying theory and purpose of the experience mod.

The purpose of a workers comp. Experience mod takes your charter school’s claims and compares them to similar-sized schools.  The formula considers loss frequency and severity to provide an accurate and fair comparison.   Schools that experience losses worse than their industry peers are penalized, while those who perform better are rewarded.

How Does My Experience Mod Affect My Premiums?

Your experience mod will start at 1.0.   Then, depending upon your losses, your mod will be adjusted, and a credit or debit will be applied to your worker’s compensation premiums.

An experience mod greater than 1.0 is a debit mod, and a surcharge will be added to your worker’s comp. Premiums.  For example, a charter school with multiple claims over the past few years could have a mod of 1.5.   That means insurance companies will automatically surcharge the school’s workers’ compensation premiums by 50%.  There is no negotiating this surcharge down.

An experience mod less than 1.0 is a credit mod, and a discount will be applied to your premiums.   Using a similar example from the last one, let’s say that a charter school doesn’t have any claims over the past few years, giving them an experience mod of .75.   With that experience mod, insurance companies will automatically apply a 25% discount to the school’s premiums.

Looking at the two examples above, it is easy to see how controlling your experience mod can dramatically affect how much your charter school pays in workers comp premiums.

Next week’s post will dive into the importance of understanding the period over which your experience mod is calculated, how NCCI evaluates your prior losses and tips for keeping your experience mod low.