When it comes to calculating workers’ compensation premiums, two critical factors play a significant role: the frequency and severity of claims. These metrics are fundamental in determining the experience modification factor (often called “mod”), which ultimately influences the cost an employer will pay for workers’ compensation insurance. Understanding how these two factors interact can help businesses reduce their premiums and improve workplace safety.

Frequency: The Stronger Driver of Premiums

In the world of workers’ compensation, frequency refers to how often claims are filed. It has a more substantial impact on the mod than severity does, and this makes intuitive sense. Frequent claims are generally seen as a sign of a poor safety program or inadequate management control. When an organization experiences many smaller claims, it suggests that workplace hazards are not being effectively addressed. This repeated exposure to risk increases the likelihood that larger claims might occur in the future, which alarms underwriters.

For instance, consider the impact of multiple small claims versus a single large one. Ten claims of $10,000 each will have a more substantial effect on the mod than one $100,000 claim. This is because smaller claims are often more predictable, and a high number of them indicates systemic issues that need attention. Predictable smaller claims point to chronic safety failures, while a single large loss may be considered an anomaly and less indicative of future trends.

Why Frequency Matters More

The underwriting rationale behind the greater weight placed on frequency is clear: A high frequency of claims reflects an ongoing risk, which is more concerning than a rare, catastrophic event. Underwriters view very large losses as rare and unlikely to repeat. For example, if a company experiences one large, unexpected claim, underwriters are likely to categorize it as a fluke, something that could happen to any business, regardless of how well safety protocols are followed. Since it doesn’t signal a systemic issue, it has less predictive value in determining future risks.

Severity: What Happens When Claims Are Big

On the other hand, severity refers to the size or cost of each claim. When a claim exceeds $21,000 (referred to as the “split point”), it becomes classified as an excess loss, and this portion is used to measure severity. The split point, now set at $21,000, can be adjusted annually to account for inflation and changing cost structures.

Primary losses are weighted more heavily in the mod calculation because they directly reflect frequency. The rationale here is that small, frequent claims indicate persistent risks in the workplace, whereas large losses are less frequent and less predictive of future claims.

The severity of a claim, while important, is viewed differently. Underwriters may not necessarily penalize an employer for a single high-cost claim because large losses are less frequent and often considered unpredictable.

The Impact of Both Frequency and Severity on Premiums

When calculating workers’ compensation premiums, the total cost of claims and their frequency play pivotal roles. While large claims naturally garner more attention due to their cost, it’s the smaller, more frequent claims that typically drive up premium costs. This is especially true for medical-only claims, which can be easily overlooked but still significantly impact the mod.

Consider this example: A company with a single $110,000 claim will experience less of an increase in premiums compared to another company that has five claims totaling $50,000. Even though the five claims cost much less than the single large claim, the frequency of claims creates a pattern that underwriters cannot ignore. More frequent claims increase the employer’s perceived risk, leading to higher premiums over time.

How Higher Frequency Affects Premium Costs

In addition to driving up premium costs, higher frequency can also lead to higher collateral requirements. Insurers may demand more collateral when they see a pattern of frequent claims, as this suggests a higher likelihood of future losses. Employers with higher collateral requirements will find their workers’ compensation insurance costs climbing faster than those with fewer claims, even if the individual claims are small.

Strategies for Managing Frequency and Severity

The best way to manage the impact of both frequency and severity on your workers’ compensation premiums is by focusing on safety and risk management. Reducing the frequency of claims is key, as frequent small claims are the main drivers of premium increases. Here are a few strategies employers can implement:

  1. Improve Safety Programs: A well-structured safety program can help reduce the frequency of accidents and injuries, leading to fewer claims. Safety training, regular safety audits, and employee engagement in safety practices are essential components.
  2. Effective Claims Management: Ensure that claims are managed efficiently, particularly when it comes to returning employees to work. The quicker an injured worker returns to work, even on light duty, the lower the overall cost of the claim.
  3. Prioritize Incident Reporting: Promptly report any workplace incidents and address them to prevent future occurrences. Investigate near-misses to understand and mitigate risks before they result in claims.
  4. Implement a Return-to-Work Program: An effective Return-to-Work Program plays a critical role in minimizing the cost and severity of claims. When injured employees are encouraged to return to work in a modified or light-duty capacity, even before they have fully recovered, it can significantly reduce the time they spend away from work and lower the overall claim costs. This approach also helps in retaining the employee’s engagement with the company and reduces the likelihood of long-term disability claims.
  5. Control Medical Costs: Monitoring medical-only claims and ensuring employees receive appropriate care without unnecessary costs can prevent medical claims from inflating over time.

Conclusion: Focus on Frequency for Long-Term Savings

In the end, both frequency and severity are important, but frequency has a greater influence on workers’ compensation premiums. Employers need to address the root causes of frequent claims, such as improving safety practices and managing claims more effectively. Doing so will not only reduce the mod and, by extension, premiums, but also contribute to a safer and more productive work environment.

By prioritizing workplace safety and risk management, businesses can keep claims at bay, reduce collateral requirements, and ultimately achieve significant savings on workers’ compensation premiums. Remember, it’s not the one-off large claim that will hurt your bottom line—it’s the many smaller claims that will add up over time.


For more detailed guidance on managing workers’ compensation costs, check out our resources on workers’ compensation savings strategies and injury management automation. Understanding the intricacies of the experience modification factor can lead to substantial long-term savings for your business.

Michael Stack, CEO of Amaxx LLC, is an expert in workers’ compensation cost containment systems and provides education, training, and consulting to help employers reduce their workers’ compensation costs by 20% to 50%. He is co-author of the #1 selling comprehensive training guide “Your Ultimate Guide to Mastering Workers’ Comp Costs: Reduce Costs 20% to 50%.” Stack is the creator of Injury Management Results (IMR) software and founder of Amaxx Workers’ Comp Training Center. WC Mastery Training teaching injury management best practices such as return to work, communication, claims best practices, medical management, and working with vendors. IMR software simplifies the implementation of these best practices for employers and ties results to a Critical Metrics Dashboard.

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: http://blog.reduceyourworkerscomp.com/

Injury Management Results (IMR) Software: https://imrsoftware.com/

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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.



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