Your experience modifier, the mod, is a single number that your carrier applies to your workers' compensation premium. A 1.00 means your loss history looks like the average for employers of your size in your industry. A 1.20 means your premium is 20 percent higher than that average. A 0.85 means 15 percent lower.

It is the most consequential number in your program, and it is calculated from claims data that was created one to four years ago. This article explains where it comes from, what moves it, and what you can and cannot influence.

Who calculates it

In most states, the National Council on Compensation Insurance calculates the mod. A handful of states run their own rating bureaus using similar methods. Your carrier does not set your mod; it receives it from the bureau and applies it.

The bureau builds your mod from two things: your payroll by classification code, and your incurred losses by claim, both reported by your carrier on a unit statistical report. Incurred means paid plus reserved, which is why open claims count fully even when little has been paid.

The rating window

The mod uses three policy years of data and skips the most recent one. A mod effective January 1, 2027 typically uses policy years beginning in 2023, 2024, and 2025, and excludes the year beginning in 2026. That lag exists so the data has time to mature.

The practical consequence is that a claim on your books today will be in your rating data for three consecutive mods. Its cost, including its reserve at each valuation, shows up three times.

Primary and excess: why frequency hurts more than severity

The mod does not treat all loss dollars the same. Each claim is split at a dollar threshold called the split point. Dollars below the split point are primary losses and count at full weight. Dollars above it are excess losses and are discounted.

The split point was $5,000 for decades, then increased in stages beginning in 2013 to keep pace with medical inflation. In 2023 the split point was $18,500, which was consistent across all states. Beginning with 2024 mods, NCCI moved to state-specific split points, so the figure now varies by state. Alaska is $28,000, Louisiana is $38,000, Utah is $13,300, and many states stayed near $18,500. Your broker or carrier can tell you the split point for each state you operate in.

Here is why this design matters. Three $10,000 claims and one $30,000 claim cost the same in total. But the three small claims are entirely primary and count at full weight, while most of the large claim is excess and is discounted. The three small claims raise your mod more than the one large one. The formula is built to reward employers who prevent injuries in the first place, not just employers who avoid catastrophes.

What actually moves the number

Claim frequency. The number of claims matters more than most employers think, for the reason just described. A program with fewer, better-managed claims will outperform a program with the same total dollars spread across more claims.

Reserves on open claims. Because incurred includes reserved, a claim sitting at a $50,000 reserve counts as a $50,000 loss at valuation, even if it eventually closes for $12,000. Reserves that stay high after the facts have improved are a direct cost to you. Read your loss run and know your claims.

Medical-only versus lost-time. In most NCCI states, claims with no indemnity payment, medical-only claims, are reduced by 70 percent in the rating calculation. That is a large incentive to keep a small injury from becoming a lost-time claim: early reporting, prompt treatment, and modified duty when the physician supports it.

Report lag. NCCI's own research found that claims reported in weeks one and two had the lowest median cost, that week-three claims ran about 35 percent higher than week two, and that attorney involvement rose from 13 percent for claims reported immediately to 32 percent for claims reported after week four. Reporting fast is the cheapest lever an employer has.

Payroll. Expected losses are based on your payroll by class code. Misclassified payroll, or payroll reported in a higher-rated class than the work warrants, inflates the denominator and can distort the mod. Worth a check at every audit.

What you cannot do

You cannot change the formula, choose which years are included, or set the reserves. And a mod is a lagging indicator: by the time it arrives, the decisions that produced it are one to four years old. Anyone who promises you a specific future mod is guessing, because the bureau has not valued the data yet and the reserves will move.

What you can do is make sure the data the bureau receives is accurate and reflects what actually happened: claims reported promptly, reserves that track the facts, payroll classified correctly, and a program that prevents the small injuries that drive frequency.

The point

The mod is a scorecard for decisions made years ago. The only way to change next year's number is to change this year's decisions: report fast, stay engaged with every open claim, keep injured employees connected to work when medically appropriate, and read your loss run like it is your money. It is.