Since workers' compensation insurance responds to financial obligations imposed by labor law, a claim is covered by the policy only when it is deemed compensable—that is, when it meets certain eligibility tests under state law. The key considerations are:
- Whether the occurrence took place within the course and scope of the injured person's employment; and
- Whether an injury and associated disability are attributable to the work-related injury.
How claims experience affects premiums
The number and size of claims made directly affects premiums.
The experience modification factor or "mod" is a numerical expression of the policyholder's three-year loss record compared to statistics from other organizations in its peer group.
- A unity modification, equal to 1.0, indicates that the policyholder's experience is on a par with others in the same general class of business.
- A credit modification, less than 1.0, reflects better-than-average claims experience. For example, a factor of .850 indicates that the policyholder s history is 15 percent better than the peer group norm.
- A debit modification, greater than 1.0, indicates poorer-than-average claims experience and suggests correction through safety programs and other preventive initiatives. For example, a factor of 1.20 indicates that the policyholder's history is 20 percent worse than the peer group norm.
In each instance, the experience modification factor is applied to the standard premium (the product of rates times remunerations), causing the policyholder's cost to decrease, remain level, or increase according to claims experience.