Mod errors occur because the mod calculation process is very complex with many players (e.g., clients, bureaus, carriers, brokers, agents and consultants).

Misclassifications are a frequent cause of mod errors. In the NCCI manual, there can be as many as 600 different class codes. Class code exceptions are not always well understood, even by auditors. Many classes are subject to Standard Exceptions (clerical, sales & drivers). There can also be as many as 100 special state class codes. States adopt new class codes with lower rates each year. The rules for applying class codes are complex and subject to constant change.

Audit errors often result in higher premiums. There are dozens of allowable deductions that may not be excluded at audit: Overtime, tips, severance pay, invention or discovery rewards, company perks like automobiles and expense accounts and third party sick pay. Employers use many accounting methods, often not separating key items. Many states have adopted a new Interchange of Labor Rule which allows employers to separate payrolls by job duty (clients must maintain payroll breakdowns). Audits by phone or mail result in fewer questions and operational observations. Incomplete interviews cause payrolls to be assigned to the wrong class. Renewal mods are often wrongfully effected based on audits errors.

Here are some mod errors from losses: Duplicate or misassigned claims can be included at unit stat time, Single and Multiple Loss Limits for each state may be misapplied to large losses, Incorrect claims reserves or expenses may be attributed to losses, Med Only losses in many NCCI states after 7-1-98 can be improperly identified, Subrogation (third party) claims recoveries are often overlooked, Misplaced claims files at unit stat time often result in the use of inaccurate (often higher) "loss run" figures which can increase client mods.

Possible fraud claims should always be questioned. Once published, mod worksheets should be reviewed for mathematical errors. Ownership changes can result in rating period changes that may effect mods. There are dozens of state Special Rating Rules that may not be correctly applied.