Learn more about how the experience modification number is constructed and how it changes over time.

The process of calculating the experience modification factor is complex, but the underlying theory and purpose of the formula is straightforward.
Your company’s actual losses are compared to its expected losses by industry type. The formula incorporates factors that account for company size, unexpected large losses and the difference between loss frequency and loss severity to achieve a balance between fairness and accountability.
The mod is calculated using loss and payroll data for an experience rating period. The experience rating period typically includes data for three policy years, excluding the most recently completed year.
For example, for a mod factor calculated on Jan. 1, 2020, data would be used for the Jan. 1, 2016 to Jan. 1 2019 policy terms. The data for the Jan. 1, 2019-2020 would be excluded.
Three years of data is used to provide a more accurate reflection of the losses, smoothing out the impact of any exceptionally bad or good year for losses.
The Expected Loss rate reflects the anticipated average cost of benefit per $100 of payroll, for a classification during the experience period. Expected loss ratios are subject to change yearly.
The expected loss rates can be found in the filings and plans section of the WCIRB website.
The actual workers comp loss data is separated into primary and excess pools.
Primary losses, which are the first $7,000 of every loss prior to 2017, measure frequency.
Excess losses, which are amounts more than $7,000, measure severity.
Note, that after 2017 this equation increased in complexity. We go over it more in our video on workers primary and excess split points.
The formula penalizes loss frequency by including all loss amounts in the calculation. The reason for this is that these types of claims can be controlled through proactive loss control programs.
Large losses are capped at levels that can vary each year. This minimizes the impact that any single claim can have on your premium.
Expected losses are then calculated using your payroll data by class code and applying the Expected Loss Ratio.
Expected Loss Ratios are provided by the WCIRB and are usually updated on an annual basis.
These figures are also broken down into expected primary losses and expected excess losses.
To figure out how your losses stack up, the final exmod calculation compares your primary and excess loss figures to those expected for a company of the same size and industry type.
To understand how Primary Excess Split Points Affect your ExMod Please watch our video explaining Workers Comp Primary Excess Split Points.
Please contact us with further questions on this or any other risk management topic. We will see you again soon!