Today we’re going to talk about how to reduce your workers compensation experience mod. This rating factor in your workers comp policy goes by many names so you may know it as your x-mod, the mod, the experience modifier, and so forth.
Let’s start with the fundamentals so I don’t lose anyone here.
The experience mod….
is a complex calculation intended to add fairness to the workers compensation insurance system by giving employers with better than expected claims experience a discount on their premiums, and surcharging employers with worse than expected claim experience.
This can create a significant impact on the final premium you pay.
If your policy has a mod of .80 you’re getting a 20% discount from the normal rates – and conversely, if your mod is 1.20 you’re paying 20% more than the average or normal rate.
The last fundamental to understand is that there are two variable elements that go into the experience mod calculation – YOUR Payroll and Claims data for three of the last four years. With that in mind, let’s jump into the question – how do you reduce your mod?
The obvious answer is – have fewer claims and have fewer expensive claims.
But that’s not the only issue to consider, and that only looks at what you can do in the future, and remember if you have a high experience mod today, it could take four years for it to flush its way out of the rating system.
So, is there anything you can do today to impact your mod on this policy term, the next policy term, or prior policy terms?
Yes, there may be.
Some experts say that 60% or more of the mods filed on employers are wrong. I’m not sure that’s right or wrong, but I do know that we often find errors in mods that result in large refunds for clients. So, let’s start with how can a mod be wrong?
And that’s simple – the data inputs I mentioned – – – payroll and claims may not be correct.
How can you check or verify that?
Well, that’s difficult if you don’t know what you’re looking for, but not impossible.
To start you’ll need all the workers comp premium audits going back over the past 4 policy terms, you’ll need copies of your loss history over those same policy terms, and you’ll need a copy of your state or national bureau’s rating worksheets over the same period of time.
That’s a lot of data to sift through but what you’ll be looking for are discrepancies between what you know are correct figures and what may be incorrect in the rating bureau’s reports.
What we do is run all these figures through an advanced software program that helps identify the errors and then produces what the correct experience mod should be. But what it also does is tell us what your minimum modifier is and from there we can calculate the controllable modifier. These are incredibly useful numbers to know and we’ll go deeper into them in our next video.
Do we turn over mistakes and get refunds – sure, and that’s great. For large accounts paying hundreds of thousands of dollars in workers comp premiums, the refunds can be significant.
But more importantly, we can help a client to understand the economic impact that claims have on their mod, their insurance costs as well as the business’s bottom line.
There’s an important fact here to understand when it comes to workers comp – you’re basically only RENTING coverage. What I mean by that —- is your insurer will pay out on claims, but you will essentially pay the insurer back those dollars in the form of higher mods and higher premiums. Your insurer is really just financing the cost of the claims. You’re paying for them.
If you’re frustrated by that, I understand. I’ve seen the lightbulb go off for other employers who make the connection between claims and premium costs. Once you get that – you can see the urgency to change.
So that covers some of the math involved in the experience mod. If you’re struggling with a high mod and want to learn more about how we can help you, please reach out to me for a conversation. Let’s see if we’re a right fit for you and your business and how we can help you out. I work in multiple states but if I think you’re better served by one of my peers who do the same kind of work, I’ll gladly refer you to someone locally.
In our next video, we’ll dive a bit deeper into the next steps on how to reduce workers comp costs specifically targeting worker injuries.
