Insurance modifier is a numeric representation of the loss of the business, in comparison with the average loss for your industry. If the loss history of the business is average, the modifier would be 1.00. If the business has a loss history that is lesser than the average, the modifier will result in lower than 1.00. Likewise, if you have a bad loss history, your modifier would probably result in higher than the average of 1.00. Thus, if your modifier is lower than the average, your premium will reduce. Therefore, if your modifier is higher than the average, your premium will increase. For example, your modifier is .80, your payroll is $800,000, and your rate is $.15. Your premium would be $960.
One of the major components of calculating workers’ compensation premium is the payroll. The payroll is divided by 100, and the result would be multiplied by the classification rate. For further illustration, suppose the payroll is $1,000,000, and your rate is $.15. The payroll divided by 100 is $10,000 ($1,000,000/100). Your rate $.15 multiplied by $10,000 is $1,500.