Once the actual weighted primary and excess losses are calculated and compared to the expected losses, the individual risk modification factor is calculated. The actual losses for a specific risk are divided by the expected losses. If the actual losses are lower than the expected experience, it is a credit modification factor (lower than 1.00). If they are higher, it is a debit modification factor (higher than 1.00).
Individual risk rate modification factors are good for one year and usually apply on the risk's normal anniversary rating date. This is the date when the workers compensation insurance coverage was first purchased. The rate modification factor is calculated and re-figured annually to add updated loss experience and to apply it for the next policy term.
The modification factor applies to the insured business and to each business or entity under the named insured's common ownership.