The experience modification rate (EMR) explained

The experience modification rate, or mod, is a multiplier applied to your workers' comp premium that compares your payroll and claims over a recent three-year window with what is expected for employers in your classes. A mod of 1.00 is average, below 1.00 is a credit and above 1.00 is a debit. It is based on frequency more than on any single big claim, so a string of small injuries can hurt your mod more than one expensive one.

What the mod does to your premium

NCCI describes experience rating as a way of tailoring the cost of insurance to the characteristics of an employer. The mod is applied to manual premium, the premium before the mod. In NCCI's example, $100,000 of premium times 0.75 is $75,000, times 1.00 is $100,000 and times 1.25 is $125,000. In another NCCI example, a roofing employer with $126,867 of premium and a 1.25 mod pays $158,584 once the mod is applied. Because it multiplies the whole bill, a 0.10 swing on a $200,000 premium is worth $20,000 a year. The experience modification rate also appears in contract prequalification: many owners and general contractors screen bidders on it.

Who is rated, and who is not

Experience rating is mandatory for employers that meet a state's premium eligibility criteria, according to NCCI; the threshold differs by state, and an employer qualifies by either meeting the premium amount in the most recent 24 months of the experience period or averaging it over the whole period. NCCI computes mods in the states that have approved its plan, which its publication counts as 39 jurisdictions. The plan does not apply in California, Delaware, Michigan, New Jersey, New York or Pennsylvania, or in the four monopolistic states, which run their own plans. Indiana, Massachusetts and North Carolina use the plan but their own bureaus produce intrastate mods. See California and Michigan for the two largest examples of state-run systems.

A business gets a unity 1.00 mod if it is below eligibility, lacks enough data, is new with no history, or lost its data due to an ownership change.

Which years count

The experience period is generally three years of policy data, but is set by the policy effective dates, not calendar years. Data from each policy counts if the policy took effect no less than 21 months and no more than 57 months before the rating effective date. The current policy is not used, and insurers do not have to report a policy's data until 18 months after inception. In NCCI's illustration, an employer renewing January 1, 2026 is rated on policies effective January 1, 2022 through January 1, 2024. The next year, the 2025 policy enters and the oldest drops out.

Practical consequence: a claim from this year does not touch your mod until it enters the window two renewals later, and it stays for about three renewals. The mod is also usually calculated roughly 60 to 90 days before the renewal date, which means your agent often has a worksheet before the carrier quotes.

How the mod is built

NCCI's worksheet follows these steps.

1. Expected losses. For each class, the expected loss rate (ELR) times payroll divided by 100 yields expected losses. In NCCI's example, an ELR of 1.413 on $3,125,350 of payroll gives $44,161.
2. Expected primary losses. A discount ratio, or D-ratio, splits expected losses into the primary part: $44,161 times 0.41 is $18,106.
3. Actual losses. Claims from the unit statistical reports are capped at a state accident limitation, then split at a state-approved split point. NCCI's example uses a split point of $18,500 and a limitation of $200,000: a $500,000 claim counts at $200,000, of which $18,500 is primary and $181,500 excess.
4. Weight and ballast. Primary losses carry full weight and excess losses are weighted by a factor (Wt) that grows with employer size. Ballast is a stabilizing amount that rises with expected losses so a single loss cannot swing the mod too far.
5. Divide. The mod is adjusted actual losses divided by adjusted expected losses. NCCI's worked example reaches $243,120 divided by $242,971, or 1.00.

In shorthand, the formula is (actual primary + Wt × actual excess + (1 − Wt) × expected excess + ballast) divided by (expected losses + ballast). You do not need to compute it by hand; the Experience mod (EMR) calculator approximates it, and the actual number comes from the rating bureau.

Why frequency matters most

NCCI's rationale: the cost of any single accident is largely chance, so the plan gives greater weight to how often accidents happen. Compare one $50,000 claim with ten claims totaling the same $50,000. The first has only $18,500 of primary loss at the example split point, and the second has far more, so ten small injuries produce a much higher mod. That is why the plan rewards getting small injuries down and returning workers quickly (return-to-work programs: how to build one).

Two details soften the effect:

• The split point is state-specific. NCCI moved from one countrywide split point of $18,500 to state-specific values, implemented with state filings starting with filings effective on or after November 1, 2023. For example, Texas used $16,500 effective July 1, 2024. The state value is updated with each loss cost or rate filing, so check your own state's current number rather than assuming a national one.
• Medical-only claims are discounted. Where the experience rating adjustment applies, only 30% of a medical-only claim counts. NCCI's example reduces a $30,000 medical-only claim to $5,550 primary and $3,450 excess.

Ownership changes and related companies

NCCI requires an employer to notify its insurer in writing within 90 days of an ownership change. NCCI may revise the current mod and up to two prior mods, and the past experience of a business generally transfers to the new owner. Experience of entities with more than 50% common majority ownership is combined into one mod. Buying, selling or reorganizing a company without telling the carrier is one way to end up with a mod that surprises you. Do not form a new entity to escape a high mod: the rules are written to link them, and it can be treated as a deliberate effort to avoid the experience.

Checking and disputing your worksheet

Ask your agent for the worksheet each year and read it. Look for:

1. Payroll in the wrong class, or in a class that no longer matches your operations (workers' comp class codes and why they matter).
2. Claims that belong to another employer, a different entity or a time before your ownership.
3. Closed claims still shown as open, or reserves higher than the paid amount on old claims; ask the carrier to review and correct the reported valuation.
4. Medical-only claims coded as lost-time.
5. Subrogation recoveries not reflected in the incurred amount.
6. A status of preliminary or contingent, which means the mod may be revised.

If the carrier agrees something is wrong, it files a correction with the bureau. If not, NCCI has a dispute process after you raise the issue with the carrier. Deadlines apply, so start as soon as you see the worksheet. Request loss runs from every carrier in the period to reconcile claims.

What actually moves a mod

• Prevent injuries and report near misses (building a workplace safety program that cuts claims, OSHA recordkeeping, injury rates and insurance).
• Offer modified duty so a lost-time claim becomes a medical-only claim or closes sooner.
• Report claims promptly so the carrier can investigate, manage medical costs and contest bad claims (the workers' comp claims process for employers).
• Keep payroll classes accurate.
• Review the claim list at each renewal for anything to close, correct or recover.

The full cost levers are in how to lower your workers' comp costs, and the premium math is in how workers' comp premiums are calculated.

Key takeaways

• The mod is a multiplier on manual premium; 1.00 is average, below is a credit and above is a debit.
• It uses roughly three years of policy data ending about a year before the rating date; this year's claims do not count until later.
• Frequency is weighted more heavily than severity through a primary/excess split at a state-specific split point, and large claims are capped at a state limitation.
• Medical-only claims count for 30% under the experience rating adjustment where it applies.
• NCCI does not set mods in California, Delaware, Michigan, New Jersey, New York, Pennsylvania or the monopolistic states; ownership changes must be reported within 90 days.