Intermediate Experience Mod Analysis – Part 2

An experience mod analysis can provide valuable insight into your business operations and Workers’ Compensation losses. Loss sensitivity is an important aspect of experience mod analysis and involves both specific and aggregate.

Mod Analysis: Specific Loss Sensitivity

This analysis identifies the specific impact that a single loss has on your experience mod and on the premium you pay during the three years that the loss is in the calculation. This can be an extremely helpful analysis to quantify the cost vs. benefit of loss prevention programs you are considering. For example, if your company has had an increase in carpal tunnel syndrome claims and you are trying to justify the purchase of keyboard holders to make workstations ergonomically correct, you can look at how much your mod and therefore your premium increased as a result of these claims. The results can be striking; for example, a single $4,000 claim may increase a small company’s premium by $10,000 to $12,000 over a three-year period. Imagine how much more powerful your funding requests for safety programs will be if you can back them up with these types of numbers. For instance, you might say to senior management, “It will cost us $20,000 to install keyboards at every workstation, but we could have already saved $65,000 if we had made this change four years ago, and our claims are continuing to rise by 15 percent a year.” To perform this calculation, you must subtract the primary and excess (if any) portions of the loss from the totals used in the mod calculation. The resulting mod will be the mod without the loss. The difference between this mod and the actual mod will be the mod impact of the loss. This difference multiplied by the estimated premium yields the cost of the loss in terms of increased premium dollars. Multiplying this value by 3 (the number of years that the loss is in the calculation) will provide an estimate of the ultimate three-year cost of the loss.

Mod Analysis: Aggregate Loss Sensitivity

Calculating the sensitivity of the mod to aggregate (total) changes in losses highlights the relationship between losses and your company’s mod. The aggregate loss sensitivity analysis yields a table showing how the mod would vary with increases and decreases in total losses. This analysis is generated by varying both the actual primary and excess losses and then computing the resulting mod. It will help you set a goal for a specific percentage decrease in losses and achieving the corresponding mod.

Further reading on experience mod calculation can be found at  https://www.ncci.com/documents/ABC_Exp_Rating.pdf. Contact Enforce Coverage Group today at 212-947-4298 for more information regarding intermediate experience mod analysis as well as a competitive WC quote.