Understanding workers compensation is a four part series written by Bill Stankevitz, senior vice-president of St. Charles, IL based Wine Sergi & Co. LLC. He has been involved with the insurance industry in many capacities for the last 45 years and invites people to visit his blog “insurance answers for business” at www.mysweethaven.com/blog.
In part two, bill covers the experience modification (or Mod). The mod is set by the NCCI (National
Council on Compensation Insurance) and determines whether a company has a below average, average, or above average loss history.
Depending on what the “mod” is determines the company’s annual workers compensation premium. Once workers compensation underwriters set what a company will be charged for their annual premium, that number is then multiplied by their “mod”. For instance, if a small moving company gets a premium quote for $40,000 in annual premium, the mod can make the actual premium fluctuate greatly. A mod of .8 means the premium will be $32000 or .8 x $40,000. However, a company with a higher mod (due to loss history) like 1.3 will pay $52,000 or 1.3 x $40,000. So you see, the premium for like sized companies can vary greatly ($20,000 in this case) due to a difference in loss history (and higher mod). This can be a huge expense or savings for a moving company (or any other business). Bill goes on to explain how the formula for calculating the mod is quite complicated and that there are ways a company can potentially help improve their mod with certain practices. Moving companies and workers compensation insurance can be a frightening topic but if you would like to learn more, read Understanding Workers Compensation Part II. The stakes are way too high to not understanding this part of business fully.