What is an Experience Modification (Mod) Rating?
Think of an Experience Mod (EMR) as a "credit score" for a company's workplace safety. It compares a business's workers' compensation claims history against the average for their specific industry.
- 1.0 Mod: Average safety record. The business pays the standard manual rate.
- Below 1.0 (Credit Mod): Better-than-average safety record. The business receives a discount on premiums (e.g., a 0.85 mod results in a 15% discount).
- Above 1.0 (Debit Mod): Worse-than-average safety record. The business pays a surcharge (e.g., a 1.2 mod results in a 20% surcharge).
How Does a Business Qualify for a Mod?
A business does not automatically get a Mod rating on day one. To ensure the rating is statistically valid, the National Council on Compensation Insurance (NCCI) or the state bureau requires a business to have enough "experience" to be measured.
Qualification is determined by meeting specific Premium Thresholds over a specific Time Period.
1. The Time Rule (The "Look-Back" Period) Ratings are typically based on 3 years of historical data, excluding the most recent policy year. For example, a Mod rating for a 2025 policy would look at claims data from 2021, 2022, and 2023.
2. The Premium Rule (The "Eligibility Threshold") Just being in business for 3 years isn't enough; the business must have paid enough in premiums to be "statistically significant." Each state sets an eligibility threshold (usually between $3,000 and $7,000 in average annual premium).
Note: A business can sometimes qualify in less than 3 years if their premiums are high enough to meet the total threshold sooner (e.g., one year of very high premium might trigger eligibility immediately in some states).
Summary: Most small business owners will not have a Mod rating for their first 3–4 years of operation unless they have a very large payroll immediately.
How is Pricing Calculated Without a Mod?
If a business does not qualify for a Mod (either they are too new or too small), they are not "penalized." Instead, they are rated using Manual Rating.
The Formula: Premium = (Payroll / 100) x Class Code Rate
- The "1.0" Standard: Without a specific Mod, the carrier effectively treats the business as a 1.0 (Average). They pay the manual rate set by the state for their industry classification.
- No Credits, No Debits: The downside is that they cannot get a discount for safety yet. The upside is they will not be surcharged for a stray claim while they are still small.
- Merit Rating (State Dependent): In some rare cases, very small businesses that don't qualify for a full Mod may be eligible for a "Merit Rating" program, which applies a small credit (e.g., 5%) for having zero claims, but this varies by state.
How to Answer Requests for Your EMR
It is common for General Contractors or clients to ask for your "EMR Letter" or "Mod Worksheet" as part of a bid process. If you do not yet qualify for a Mod, you should generally not tell them "My EMR is 1.0." This implies you have a rating, and they will expect to see an official NCCI worksheet that doesn't exist.
The Correct Response: If you are unrated, the correct industry terminology is to state that you are "1.0 - Non-Rated" or simply "Unrated."
Sample explanation for a General Contractor or anyone requesting an EMR: "Our company does not yet meet the premium or tenure thresholds required by the state to receive an Experience Modification Rating. Therefore, our policy is 'Non-Rated,' which defaults to a 1.0 factor for pricing."
Most insurance carriers can provide a formal letter stating that you are ineligible for a Mod, which satisfies the requirement for most construction bids.
Why Safety Matters Before You Have a Mod
Even though a new business doesn't have a Mod rating today, the losses occurring now are "building" the record for the future.
A claim that happens in Year 1 will likely impact the premiums in Years 4, 5, and 6.
Maintaining a clean record from the start ensures that when the business finally qualifies, they debut with a Credit Mod (below 1.0) rather than a debit.