Essential Takeaways

• Your experience mod applies to your entire premium, so small shifts compound quickly.
• Recent claims don’t hit your mod right away, which changes how you plan for renewal.
• Claim frequency hurts your mod more than severity at lower dollar amounts.
• Loss run errors are more common than most business owners realize.

Most business owners understand that workers’ compensation claims will increase their insurance premium at renewal. But many don’t understand how the formula actually applies to their payroll, how long a claim remains in the experience period, or why a $6,000 claim might cost more than $6,000 after all the calculations are complete. 

This confusion about how workers’ compensation insurance works leads to decisions made on instinct rather than numbers, and is the cause of many avoidable premium increases.

What the Experience Mod Is and Why It Controls Your Renewal

The experience modification rate (i.e., the “experience mod”) is a multiplier applied to your entire workers’ compensation premium at renewal. A mod of 1.0 is neutral, meaning you pay the base rate for your industry and payroll size. While a mod below 1.0 reduces that figure, a mod above 1.0 increases it and is applied across every dollar of payroll on the policy.

The mod is calculated by comparing your actual claims costs against the expected claims for a Connecticut business of your size and classification. If your losses are lower than the average loss of similar businesses, your mod falls. If they are more, your mod rises. That comparison resets annually and draws on three prior policy years of data, which means every claim affects the premium for three years.

How Your Claims History Gets Built Into the Formula

That three-year lag cuts in both directions. A claim filed last year won’t appear in the experience mod calculation until the renewal after next. That delay means a business owner can close out a difficult year thinking the mod is under control, only to be shocked when they see the renewal figure two years later.

And many business owners are surprised how claim size and claim frequency affect the formula differently. While a single large claim is seen as an isolated event, multiple smaller claims in a short period signal a pattern. That’s why frequency affects the formula more aggressively than severity at lower dollar amounts. 

Frequency can also signal the carrier to look at the business for safety issues. An underwriter reviewing a business with five claims in 24 months may prompt different conclusions than one reviewing a single incident, even when the total paid losses are identical. That scrutiny can affect coverage options and pricing.

Choosing When to File or Absorb a Claim

Often for small Connecticut businesses, when an incident involves no medical treatment, no lost work time, and no potential for follow-on litigation, paying a minor loss directly is less expensive than filing a claim. But any claim with one of these issues should be reported regardless of the short-term consequences to the premium. 

Before choosing to file a claim or absorb the cost, check that you’re compliant with workers’ comp guidelines. An experienced broker can advise you on your requirement to file a claim and model its three-year premium impact before you file.

How to Bring Your Mod Down After a Difficult Claims Period

A thorough return-to-work program is the single most effective post-injury tool a business has to lower the mod. The experience mod formula penalizes lost-time claims, so a program that prevents or reduces wage payouts is helpful. This means moving injured employees to modified duty as soon as medically appropriate to reduce indemnity (lost-wage) payments. 

You should also close open claims as quickly as possible. The formula uses a claim’s value at the time of calculation, meaning an open claim with an estimated reserve value counts against the mod before final payment is made. 

Finally, contesting inflated or fraudulent claims is a legitimate part of claims management. Every dollar removed from a claim’s final paid value may reduce the mod impact for the full three-year period.

Review Your Loss Runs Before Your Next Renewal

Loss runs are the claims history reports that feed the experience mod calculation, and errors in them happen. An incorrect open reserve or a misattributed claim can artificially inflate a mod for years. An independent broker can review those records before every renewal and identify whether the mod on the quote accurately reflects the actual claims record.

JMG Insurance Corp began as a local agency in 1916. We have since grown with the needs of our clients and, while we still offer the personalized service of a local agency, we now have the strength and market access of a national brokerage.

Contact JMG Insurance Corp today to review your claims history and find out how your workers’ compensation insurance premium in Connecticut might change at your next renewal. Our advisors work with Connecticut business owners to check the numbers behind the mod before a renewal figure is accepted as final.