Experience Mod Analysis for Workers Comp Insurance – Part 1

Ed WinslowEx ModsLeave a Comment

Experience Mod

Intermediate Experience Mod Analysis

An experience mod analysis can provide valuable insight into your business operations and Workers’ Compensation losses. If you have a basic understanding of how an ex-mod is calculated, you can use a few simple equations to gain a deeper understanding of the factors contributing to your number.

Determination of the Minimum Ex Mod Factor

The minimum experience modification factor, also known as the loss-free rating, is the lowest experience mod possible for your company. This value can be determined by plugging in zero actual primary and excess losses into the experience mod formula while maintaining the values for expected losses, ballast and weighting value. This gives the lowest  mod value theoretically achievable by your company. The minimum experience mod is not the same for all companies. For small companies (as measured by expected losses), the minimum modification factor can be in the range of 0.90. As the size of the company increases, the minimum ex-mod decreases. For very large companies, the mod may be 0.40 or even lower. Knowing your mod factor is important for large and small companies. A large company with a mod of 0.95 may still be able to achieve significant savings through loss control and loss prevention activities. The company may perceive the 0.95 mod as “good.” However, if it is 0.50, there is significant room for improvement. For a small company, the minimum ex-mod can be used for setting realistic expectations; for example, a small company that sets a goal of having a 0.80 mod will not be able to achieve it under any circumstance if the minimum experience mod is 0.85.

Determining the Controllable Experience Mod

The controllable experience mod is the difference between your current mod and your minimum one. This is the variable piece of your mod that fluctuates with losses. The controllable experience mod can be broken into the contribution made by primary losses and by excess losses. This helps you to identify the exact contribution of loss frequency and loss severity to your experience mod. By estimating your basic premium (the premium prior to application of the mod), you can calculate the cost of primary and excess losses in terms of increased premium. You calculate this by multiplying the premium by the increase in the mod caused by primary or excess losses. This will assist you in determining the potential value of loss prevention, loss control and safety programs.

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.

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