What Is A Good Experience Modification Rate?
If your Experience Modification Rate is below a 1.00, you are better than at least half of the businesses in your industry within the states where you operate. Also, if you are below a 1.00, you are probably not missing out on new business opportunities from disqualification due to poor claims experience. If you are unsure to what I am referring, you can learn about Experience Modification Rates as business qualifiers through some of our blog posts like this one.
Since you multiply your Experience Modification Rate by Manual Premium, you can't have an Experience Mod of zero (0.00) right? That means you'd pay nothing for work comp insurance (which would be nice!).
What Is The Lowest Experience Modification Rate Possible?
When asking "What is a good experience modification rate?" it's helpful to know your Minimum Mod. The best, lowest possible Experience Modification Rate you can have is something called your Minimum Experience Mod or Minimum Mod. This is what your Experience Modification Rate would be if you removed all of the claims from your experience mod.
Everybody's minimum Experience Modification Rate is different. And, your minimum EMR can change from year to year too!
So, the question "What is the lowest Experience Modification Rate possible?" is unique to each business. The appropriate question is "What is the lowest possible Experience Modification Rate possible for my business?" And, your lowest possible EMR is your Minimum Mod.
There is a short cut to calculating your Minimum Mod. Go grab a copy of your experience modification worksheet. See in the example below the circled Stabilizing Value and Expected Total Loss figure? Divide Stabilizing Value by your Expected Total Loss and you will get your Minimum Experience Modification Rate. In this example the client's actual experience mod is a .94 and the minimum mod is a .56.
Minimum Mod .56 = Stabilizing Value 282,864 / Expected Totals 500,816
What Is Controllable Premium And How Does The Minimum Experience Modification Rate Effect It?
Controllable Premium is how much insurance premium (money!!) your Experience Modification Rate costs your business.
Even credit mods (Experience Modification Rates below 1.00) cost you money!
In the example above where our client has a .94 Experience Modification Rate and a .56 Minimum EMR, assume that their Standard Premium before Experience Rating is $100,000. After application of their .94 Experience Modification Rate, their premium owed is $94,000.
However, if you multiply their minimum mod (.56) to the Standard Premium you get $56,000; the amount they'd owe if they didn't have any claims.
The difference between $94,000 and $56,000 is $38,000. $38,000 is their Controllable Premium. Another way of stating it is that the Controllable Premium is the amount of money you can save (control) to the extent you can reduce your claims to zero.
So, What Is A Good Experience Modification Rate?
So, what is a good Experience Modification Rate? Good is anything below a 1.00 if for no other reason than you are receiving a discount on the premiums you pay to your insurance carrier. As you move away from 1.00 toward your minimum mod, you are moving from good toward great.
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