A straightforward guide to one of the biggest pricing factors in workers’ compensation.
Contractors talk — especially about insurance.
And one of the most common frustrations you’ll hear is something like:
“How is that contractor paying so much less for workers’ comp than we are? We have the same payroll, same work, same number of employees… what gives?”
Nine times out of ten, the answer is simple:
Their experience modification rate (experience mod) is different from yours.
Your experience mod can dramatically shift what you pay for workers’ compensation — even when everything else about your business seems identical to your competitors. And the factors that influence it aren’t always obvious.
Let’s walk through why two contractors can appear the same on paper but end up with very different premiums.
1. Experience Mod Basics — A Quick Refresher
Your experience mod compares:
- Your company’s actual injury history
to
- The industry’s expected losses for your size and class codes
Then assigns a number:
- 1.00 = average
- Below 1.00 = better-than-average performance → discounted premium
- Above 1.00 = worse-than-average performance → higher premium
The formula is standardized, but the inputs are unique to each contractor — and that’s where the differences start.
2. Claim Frequency: The Biggest Driver of Higher Mods
Two contractors could both have had $50,000 in total losses over the past few years. But how those losses occurred makes a huge difference.
Contractor A
- One major claim: $50,000
Contractor B
- Five small claims totaling $50,000
Even though the totals match, Contractor B’s mod will almost always be higher.
Why?
Insurance bureaus treat frequent small claims as a warning sign of systemic issues — weak training, poor hazard controls, or operational practices likely to lead to future injuries.
Frequency hurts more than severity.
And many contractors don’t realize how big of an impact those “little” first-aid or medical-only claims have over time.
3. The Impact of Lost-Time vs. Medical-Only Claims
Not all claims weigh the same.
Medical-only claim
Someone is injured but does not miss work.
These claims are discounted when calculating the mod.
Lost-time claim
Someone misses work due to injury.
These claims are not discounted — making them far more significant.
Two contractors may have the same number of claims, but if one has more lost-time injuries, their mod will rise faster.
This is why a return-to-work program is one of the most powerful tools to keep your mod under control.
4. Payroll Size and Classification Codes (The Silent Mod Influencers)
Expected losses (your baseline in the mod calculation) come from:
- Your payroll
- Your specific class codes
Contractors in similar trades might think they’re paying the same employees for the same work
— but class code variations can make a big impact.
Examples:
- Carpenter (5403)
- Interior carpentry (5437)
- Roofing (5551)
- Concrete (5221)
These codes all carry different risk weights, and even small classification mismatches can throw the expected loss calculation off — creating different mods for seemingly similar companies.
5. Subcontractors and Certificates of Insurance (The Hidden Mod Trap)
This is one of the biggest reasons contractors see mod differences.
Contractor A may require:• Signed sub agreements
- Valid COIs
- Endorsements verifying coverage
- Clear labor vs. materials breakouts
Contractor B may:
- Not track COIs consistently
- Use uninsured or underinsured subs
- Fail to verify class codes
- Inherit claims they never expected
If uninsured subs are used, many carriers will treat subcontractor labor as your payroll, which:
- Increases your expected losses
- Increases your mod
- Increases your audit bill
Two contractors with the same internal staff payroll can look entirely different to the insurance carrier simply based on subcontractor documentation practices.
6. Maintenance Programs Make a Measurable Difference
Your experience mod includes:
- Paid claim amounts
plus
- Open claim reserves
If one contractor:
- Reviews reserves
- Requests updates
- Provides return-to-work info
- Pushes for claim closure
…and another does not, their mods will diverge — sometimes dramatically.
Many contractors don’t realize how much open claims, not just paid claims, impact their costs.
7. Three Real-World Scenarios That Show How Mods Diverge
To make this practical, here are three examples contractors often relate to:
Scenario 1: Same Payroll, Different Reporting Practices
- Contractor A reports claims immediately
- Contractor B waits days or weeks
Delayed reporting = higher claim costs = higher mod.
Scenario 2: Same Injury, Different Return-to-Work Strategy
- Contractor A brings injured worker back with modified duty
- Contractor B has no light-duty options
One becomes a lost-time claim — and pressures the mod upward.
Scenario 3: Same Subcontractor Usage, Different Documentation
- Contractor A tracks COIs monthly, verifies class codes, obtains endorsements
- Contractor B gets a certificate at the start of the job and never checks again
Even one uninsured or misclassified subcontractor can create a significant mod difference.
8. What Contractors Can Do to Improve Their Experience Mod
Here are steps any contractor can take to close the gap and bring their mod down over time:
1. Prioritize safety training and hazard awareness
Consistent safety practices reduce frequency — the biggest mod driver.2. Report claims quickly
Faster reporting = lower severity.
3. Set up a return-to-work program
This alone can reduce the impact of claims by 30–70%.
4. Review open claims
Push for updated reserves and closure when appropriate.
5. Track subcontractor COIs and agreements carefully
Clean documentation protects both your mod and your audit.
6. Review class codes annually
Mistakes in classification are far more common than most contractors realize.
7. Request a mod audit if something looks off
Errors happen more often than you’d think.
The Bottom Line
Two contractors can perform the same work, employ the same number of people, and have the same payroll — yet pay drastically different workers’ comp premiums.
The difference almost always comes down to:
- Claim frequency
- Claim type
- Safety culture
- Reporting practices
- Return-to-work strategy
- Subcontractor documentation
- Classification accuracy
- Reserve management
Understanding your experience mod helps you control one of your most important insurance costs — and gives you a competitive advantage when bidding work.
If you’d like help reviewing your experience mod or understanding why your costs differ from competitors, our team can walk you through the numbers and next steps.
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