Understand Your Policy Modifiers: Experience Modification, Loss Runs and Their Pricing Impact

A practical, expert guide for business owners, risk managers and brokers who want to understand how experience modification factors (mods) and loss runs drive commercial insurance pricing — and what to do about it. This guide focuses on the U.S. market and zeroes in on workers’ compensation experience mods (the single most material policy modifier for many firms), how loss runs feed underwriting decisions across lines, real-world pricing examples, and an action plan to lower premiums without sacrificing coverage.

Table of Contents

What are policy modifiers and why they matter
Experience modification (the “mod”): definition, formula, and why it changes your premium
Loss runs: what they are, how underwriters use them, and legal/operational best practices
Real-world pricing examples: how a mod changes the premium (step‑by‑step)
The interaction between loss runs and other policy levers (deductibles, bundling, financing)
How to improve your mod and clean up loss runs — tactical playbook
Tools, templates and negotiation checklist
Frequently asked questions
Further reading and internal references

Table of Contents

What are policy modifiers and why they matter

Policy modifiers are the numeric adjustments underwriters apply to a base (manual) premium to reflect the actual risk profile of a business. The two most impactful and commonly discussed modifiers in the U.S. commercial insurance market are:

Experience modification factor (experience mod, e-mod, X-mod) — primarily used in workers’ compensation to adjust premium up or down based on the company’s claim history compared with industry peers. (help.kemi.com)
Loss runs — historical claim reports (paid and reserved amounts) that underwriters review when quoting virtually every commercial line (workers’ comp, general liability, commercial auto, etc.). Loss runs are both an input to the mod calculation and a standalone underwriting signal. (insureon.com)

Why they matter:

A seemingly small change in an experience mod (e.g., 0.90 → 1.10) can translate into tens of thousands of dollars difference for firms with large payrolls.
Loss runs influence not only workers’ comp pricing but also whether carriers will cover your account at all, what terms they offer, and what endorsements or exclusions they require.
Clean, contextualized loss runs and a fair mod can be among your best negotiating tools when shopping quotations or bundling policies.

Experience modification — what it is, how it’s calculated, and limits

Plain-English definition

The experience modification factor (mod) compares your company’s actual loss experience to the expected loss experience for similar businesses (same industry class codes and payroll). A mod of 1.00 is neutral (industry-average). A mod above 1.00 increases your workers’ compensation premium; a mod below 1.00 reduces it. (help.kemi.com)

What data goes into the mod

Typically three full years of payroll and loss information are used to compute the mod that applies for one rating year (though exact eligibility windows and minimum premium thresholds vary by state). (help.kemi.com)
Claims are recorded on an incurred basis (paid + reserved).
Losses are split into primary (the first portion of each claim up to the split point) and excess (amounts above the split point), with primary losses carrying more weight in the calculation. (ncrb.org)

Key technical points (brief)

The formula combines Actual Primary Losses, Actual Incurred Losses, Expected Primary Losses, and Expected Incurred Losses, along with weighting and ballast factors that stabilize small-account volatility. The rating bureaus (NCCI in most states; state bureaus in others) publish the rules. (ncrb.org)
Split point: a dollar threshold that separates primary from excess loss. Split points are periodically adjusted; changes materially affect how large individual claims influence the mod. Recent and proposed changes to split points and state accident limitations are driving recalibration across states. (usi.com)
Some states or bureaus use stand-alone mods (mods that apply only to payroll in that state) while others use interstate or aggregated mods — important for multi-state employers. (cutcomp.com)

How frequently the mod changes

The mod is typically recalculated each rating year using the most recent available historic data. If your insured status meets the premium eligibility thresholds, you’ll receive an updated mod annually that applies to the next policy year. (help.kemi.com)

Loss runs — the claim history file underwriters rely on

What a loss run contains (and what to check first)

A loss run report typically includes:

Policy numbers and policy periods
Date of loss and date reported
Claim type (WC, GL, auto)
Description/summary of the claim event
Paid amounts and current reserves
Claim status (open/closed)
Adjuster notes (sometimes)

If something in your loss run looks off (misspelled names, duplicate entries, incorrect paid amounts or open reserves), get it corrected immediately — loss runs are a primary underwriting record. (findlaw.com)

How to obtain loss runs

Contact your carrier or appointed agent/broker and request the loss runs in writing (email is fine), specifying the time horizon (commonly 5 years) and the formats you need (PDF, Excel). Most carriers respond within 7–10 business days; many states require responses within a specified period. (insureon.com)
Maintain your own digital archive (download annually) so you can deliver clean loss runs to prospective carriers quickly.

Why underwriters care

Loss frequency and severity trends tell underwriters whether past risk-control measures worked and whether the account is trending low- or high-risk.
A record of multiple small losses is often more damaging than a single larger, old loss — because frequency predicts future claims more reliably than a single catastrophic, well‑documented one.
Open reserves are a red flag; carriers often apply higher pricing, larger deductibles, or exclusions when reserves suggest potential future payments.

Real-world pricing examples: how a mod changes the premium

Below are simple, realistic calculations that show how experience mods affect workers’ compensation premiums. These are illustrative — exact premium formulas vary by state, company classification, and insurer-specific factors — but they demonstrate the mechanics.

Assumptions used in examples

Manual (base) premium: payroll × class rate = $100,000 (this is before any mod or experience adjustments)
Experience mod scenarios: 0.85 (good), 1.00 (average), 1.25 (poor)

Example 1 — direct mod impact

Scenario	Manual Premium	Experience Mod	Final WC Premium
Low mod (0.85)	$100,000	0.85	$85,000
Neutral (1.00)	$100,000	1.00	$100,000
High mod (1.25)	$100,000	1.25	$125,000

Result: Moving from a 0.85 mod to 1.25 increases premium by $40,000 (47% increase on the low-mod premium). In absolute terms, a 0.15 change in mod on a $1,000,000 payroll account can mean tens of thousands of dollars.

Example 2 — layered effects after endorsements, credits

Remember: the mod is applied to the workers’ compensation premium component. When you bundle policies (e.g., a Business Owners Policy or package) or buy in high-limits, the net financial impact multiplies because of total cost-of-risk. For example, if a mod triggers the need for a higher SIR/deductible or special endorsements, the overall cost can rise beyond the mod's direct premium increase.

How loss runs and mods interact with other pricing levers

Understanding the interplay helps you choose the right cost-control strategy for your business.

Deductible choices — Choosing a higher deductible shifts small losses to you (reducing frequency in the insurer’s view) and can lower premium, but be careful: if you retain more loss dollars, your mod may still be affected unless the deductible is structured in ways recognized by the rating bureau (e.g., large deductible or deductible programs that exclude certain small claims). See our guide on deductible decisions for deeper trade-offs. Deductible Decisions: How Choosing Higher Deductibles Impacts Your Business Insurance Costs
Premium financing vs pay-in-full — Financing premiums generally doesn’t change your mod, but it affects cash flow and the total cost if financing interest or fees are included. For liquidity-sensitive firms looking to invest in safety programs, financing can free up cash to reduce frequency and bump down the mod over time. Premium Financing vs Pay-in-Full: Cost Comparison and When Financing Makes Sense
Bundling policies — Clean loss runs and a good mod help secure better bundled pricing (BOP + Auto + Workers’ Comp). Bundled accounts often get preferred pricing from carriers because underwriting overhead is lower. Bundle & Save: How Combining Policies (BOP + Auto + Workers’ Comp) Cuts Total Cost
Underwriting levers — Underwriters will offer concessions for documented safety programs, pre-hire screenings, drug testing and return-to-work plans — all items that reduce frequency and hence mod pressure. Underwriting Levers: What Insurers Look for and How to Improve Your Risk Profile Quickly

Tactical playbook: How to lower your mod and improve loss runs (12-step program)

This is a practical, prioritized action list you can implement over the next 12–24 months. Actions are grouped into immediate (0–30 days), short-term (1–6 months), and medium-term (6–24 months).

Immediate (0–30 days)

Request and archive loss runs for the last 5 years (electronic copies). If your carrier delays, make a formal written request — many states require a response within a set timeframe. (insureon.com)
Review loss runs line-by-line for data errors: duplicate claims, wrong dates, incorrect paid amounts or reserves. Get corrections in writing and follow up until the carrier confirms the correction. (findlaw.com)
Pull your current experience mod and understand when it resets (rating effective date). Confirm with your broker which payroll years were used in the calculation. (help.kemi.com)

Short-term (1–6 months)
4. Implement a documented claims-reporting policy: all incidents — even minor — are reported to HR and the insurer within X hours, with written incident reports and photos. Faster reporting reduces reserve uncertainty and speeds claim closure.
5. Set a return-to-work program with light-duty job descriptions and supervisor training. The quicker injured employees get back to modified duty, the less wage replacement and permanent disability exposure you generate.
6. Train supervisors and crew leads in safe procedures, near-miss reporting and hazard identification. Track engagement metrics to show underwriters measurable improvements.

Medium-term (6–24 months)
7. Audit payroll classification codes — misclassification can artificially raise premiums and create mod distortions. Use a third-party auditor if needed.
8. Negotiate with carriers using cleaned-up loss runs and a written safety ROI plan (metrics and targets). Emphasize frequency reductions and closure rates.
9. Consider alternative rating programs (retrospective rating, large deductible, or captives) if you have predictable losses and the balance sheet to support them.
10. Implement targeted engineering controls for high-cost exposures (machine guarding, fall-protection systems) and document training and inspections.
11. Consider join-forces strategies like participating in experience-mod-based group programs or industry-funded safety groups where available.
12. Re-evaluate annually and keep your broker informed of all safety investments and claims outcomes — underwriters reward transparency and evidence-based risk control.

Why these steps work

Frequency reduction is the single most powerful lever to lower a mod. Primary losses (frequent, lower-dollar claims) carry more weight in the mod formula than rare, catastrophic claims.
Reserve management and claims closure lower open reserves on loss runs, making your history look healthier to underwriters.
Documentation is currency in underwriting: measurable KPIs, photos, sign‑in sheets, return-to-work logs and safety meeting minutes materially improve how a carrier prices your risk.

Negotiation checklist: present your account so carriers compete for your business

When you go to market, use this checklist to maximize leverage and minimize premium:

Present clean, corrected loss runs (5 years) and an executive one-page claims summary (frequency, severity, open reserves).
Include your latest experience mod and a short note about any claim anomalies (fraudulent claim, split employer liability, legal settlement out of policy).
Provide documentation of safety programs: training calendars, number of inspections, corrective-action logs, and evidence of return-to-work placements.
Provide payroll audits or clarification on classification codes (and a signed attestation).
If you’ve implemented engineering controls or have third-party safety audits, include ROI case studies and before/after claim counts.
Ask carriers to quote multiple scenarios: standard policy, higher deductible, large-deductible program, and retrospective rating — so you can compare total-cost-of-risk, not just premium.
Use the Proposal Comparison Matrix (example below) to compare total cost, not just premium.

Example Proposal Comparison Matrix

Carrier	Premium	Deductible / SIR	Mod Impact	Estimated Claims Cost (retained)	Total Year 1 Cost
A (Current)	$120,000	$2,500	1.10	$8,000	$128,000
B (Quote)	$105,000	$10,000	1.10	$6,000	$111,000
C (Alt Program)	$90,000	Large deductible $50k	1.10	$20,000	$110,000

Case studies & hypothetical scenarios

Case A — Small contractor, quick wins

Company: Local roofing contractor, payroll-driven manual premium = $60,000.
Challenge: Mod = 1.30 due to three soft-tissue shoulder/ladder claims in the last 2 years.
Strategy implemented: mandatory ladder-training, job hazard analysis, stricter PPE enforcement, and return-to-work light-duty option.
Result (18 months): Frequency drops, reserves on open claims reduced and two claims closed. Mod moves from 1.30 → 1.05 over the next renewal cycle, saving roughly $15,000–$18,000 in yearly premium.

Case B — Retailer with a one-off catastrophic claim

Company: Regional retail chain, single large slip-and-fall with high medical costs but otherwise clean record.
Outcome: Because the claim was isolated and well-documented (and depending on split point/excess treatment), the retailer’s mod only increases modestly; frequency remains low and underwriters are comfortable offering competitive package pricing. This is why good claim narratives and management matter as much as the cost.

These cases underscore: frequency reduction and documentation matter more than trying to hide or litigate past claims.

Tools: templates and sample communications

Loss Run Request Email (template)

Subject: Loss Run Request — [Company Name] — [Policy #s]
Body: Please provide a loss run for the last 5 policy years for [company name], policy numbers [list]. Preferred format: PDF and Excel. Please include dates of loss, claim status, paid amounts and reserves. Response requested by [date]. Thank you.

Executive Claims Summary (1 page)

Table: Year | # of claims | Total paid | Avg paid | Open reserves
Quick bullets: top 3 exposures, corrective actions taken, return-to-work statistics

Negotiation one-pager

Key KPIs: mod, frequency (claims/100 employees), average severity, LTAs (lost-time accidents), near-misses reported, training hours/year

Frequently asked questions

Q: How long do loss runs typically go back?
A: Common practice is 3–5 years, but many underwriters request 5 years. State laws sometimes require carriers to provide loss runs for a specified number of years upon request. (insureon.com)

Q: Do loss runs include reserves for future payments?
A: Yes. Loss runs show both amounts paid and current reserves (estimated future payments) for open claims. Those reserves matter to underwriters. (sentry.com)

Q: Can you get your mod lowered immediately?
A: Mods are calculated on fixed historic windows and typically update annually. You can, however, take steps that impact future mods (frequency control, claims closure) and sometimes qualify for alternative rating plans if eligible. (help.kemi.com)

Q: What if a claim on my loss run isn’t mine?
A: Dispute it immediately with the carrier and request correction in writing. Keep copies of all correspondence; corrected loss runs are essential when shopping renewal quotes. (findlaw.com)

Summary — key takeaways

The experience modification is a powerful lever: a modest change in your mod translates into large premium swings for payroll-heavy businesses. (help.kemi.com)
Loss runs are the underwriting source of truth — maintain, correct and contextualize them proactively. (insureon.com)
Focus on frequency reduction, claims closure, and documentation. These are the fastest, most reliable ways to improve your mod and earn better quotes.
Use a data-driven negotiation approach: cleaned loss runs + safety metrics + multiple pricing scenarios will get you the best outcome.
Structural programs (large deductibles, retro programs, captives) can produce long-term savings — but only if your organization can manage retained losses responsibly.

Sources and authority

Selected authoritative sources cited in this guide (used to support the definitions, rules and process guidance above):

N.C. Rate Bureau — Experience Rating Calculator instructions and split-point/loss-limit rules. (ncrb.org)
KEMI — What is an experience modifier and how is it determined (practical explanation). (help.kemi.com)
USI Executive Insights — Key changes to NCCI’s experience modification factor and split point commentary. (usi.com)
Sentry Insurance — What is a loss run report and how to read one (practical guidance). (sentry.com)
Insureon — How to request and use loss runs; turnaround expectations. (insureon.com)

If you’d like, I can:

Prepare a one-page executive summary for your renewal packet (loss runs + mod explanation + safety ROI bullets).
Review your loss runs (redline errors and suspicious entries) if you paste them or provide anonymized extracts.
Build a 12-month action calendar tailored to your industry (contractor, retailer, tech startup) to target the highest-impact mod & premium reductions.

Which would be most helpful right now?