Today I answer the question: what is the workers comp experience mod?

The workers compensation experience modifier goes by different names or phrases depending on who you’re speaking to.  I call it the mod, but others may call it your x-mod, the experience mod, the modifier, etc.

Regardless of what you call it, the mod is a rating factor found in your workers compensation policy and it’s specifically developed for you.  That development or it’s promulgation is done by either a state workers compensation rating bureau, or by the national bureau known as the NCCI or National Council of Compensation Insurers, depending on the states you’re located in.

What does the mod do?

The mod is intended to add fairness and balance to the workers compensation system by charging employers with poor claim experience more than the average and those employers with fewer claims getting charged less than the average.  That is the mod’s basic function.

How is the mod calculated?

The mod is calculated on three of the last four years of your payroll and claims data which are reported each year by your insurance company to the rating bureau I mentioned a minute ago.  The rating bureau takes that data and runs it through a complex formula to produce the mod, which is expressed numerically such as .82 which would be a credit modifier or something like 1.22 which would be a debit modifier.

How is the mod used in my policy?

The mod is a factor that is multiplied against your “standard premium”.  Your standard premium is the total of premiums each class code on your policy generates.

For example, if your standard premium is $100,000 and your company does a great job with safety and has fewer claims than expected and you have a .82 mod, your premium final modified premium will be $82,000.

Conversely, if your company has had problems with claims and it’s not so safe and you have a mod of say 1.22, you’re premium will be $122,000.

This is an oversimplification of how the premium is developed because I’m omitting taxes, fees, assessments and other surcharges and credits, but I’m sure you get the gist of what I’m trying to explain here.

These two employers started off with the same standard premium but the one with poor claims experience is going to pay $40,000 more premium than the employer with good claims experience.

This is what I mean by adding fairness and balance in the workers comp system.  Employers with a good safety record will pay less, than those employers with a poor safety and claims record.

The point I’m getting to is that the mod can be your friend or your foe, it’s up to you which it’s going to be.

So, you may be asking –

How can I reduce my mod?

Good question.  Reducing your modifier can be achieved by having fewer claims.

Period.

The good news is that claims CAN be controlled.  In fact, in my almost 40 years in the business, I’ve worked with hundreds of business owners to help them reduce claim frequency and claim severity and seen a reduction in their mod, their workers comp premiums, and their total cost of risk.

There is a small catch –  and that is that it’s hard to reduce your mod quickly.  As I mentioned earlier your mod is based on three of the prior four years of experience so if you have bad claims experience from 3 or 4 years ago that’s going to stick with you until they get flushed out of the formula.  The point is that it’s never too early to start on safety and risk control strategies to reduce claims and claim costs.

Can my mod be wrong?

Yes, your mod can be wrong and the problem is that the rating bureau that develops your mod, your insurance company that uses that mod, and your broker who sells you the policy with that mod are not responsible for verifying or checking your mod’s accuracy.

Some proactive brokers who specialize in workers comp do verify modifiers for their clients, but from my experience most do not.  Typically because they don’t know how to, or don’t understand how the mod is developed, and they lack the tools and knowledge to actually perform the calculations.

In fact, some experts believe that 60 to 70 percent of mods are wrong in all employer’s workers comp policies, which is staggering when you think about it.

How can you verify the mod?

There are two predominant ways to verify your mod.

The first is you can use a consultant who specializes in experience mod audits and usually works on a contingency basis.  They can look back up to three years to find errors and get them corrected on prior policies and get you refunds.  Typically these consultants work on a contingency basis and take 50% of the refunds you get as their fee.

The second way is to work with a broker like me who specializes in workers comp and can determine the accuracy of your mod as well as look backward to see if you’re due a refund.  Typically we do this work for new clients who commit to working with us without a fee or contingency arrangement.  We believe this is part of our value add to a new working relationship.  If the mod is correct, you know you’re good.  If it’s not, we work to get it corrected.

Here’s the bottom line.

The workers compensation experience rating modifier has a huge impact on the premium you pay for workers comp.

The safer your work environment – the lower your premiums will be for workers compensation – but more importantly, the few claims you have, means you’ll also have lower soft costs which occur with every claim.  In fact soft costs can be anywhere between 2 to 20 times the actual cost of a claim according to the bureau of labor statistics.

Controlling risk and claims takes commitment and more importantly support.  Support which I can help you with as part of our CompControl-360 process.  The larger the premium you pay, the more that’s at risk.  There’s no sense in going it alone – give me a call or drop me an email and let’s chat about your mod and your efforts to control the cost of workers compensation inside your company.

Thanks