Question of the Month - May 2008
Q.What is a Workers Compensation Experience Modification Factor, how is it calculated and how can you keep your Experience Mod as low as possible?
A. Your experience modification factor, or mod, is an important component used in calculating your workers’ compensation premium. If you can control your mod, you can control your price!
Calculating your Experience Modification Factor can be complex, but the underlying theory and purpose of this formula is pretty straightforward. Your companies actual losses are compared to the expected losses in your by similar companies in your-like Industry. The formula takes into account your company size, unexpected large losses, your loss frequency, and your loss severity.
The Mod Factor represents either a credit or debit that is applied to your Workers’ Compensation Premium. A Mod Factor greater than 1.0 is a debit mod which means that losses are worse than expected and an additional charge will be added to your total premium. A mod factor less than 1.0 is a credit mod which means the losses are better than expected resulting in a discounted premium.
The lower the modification the lower your premium will be…. For example, if your experience mod is .85 you will be saving 15% on your premium. Conversely, if your mod is 1.15, you will be paying an additional 15% to your total premium.
Who Calculates the Workers Compensation Experience Modification Factor?
The National Council on Compensation Insurance (NCCI) is a not-for-profit rating, statistical and data management services organization. The following states have their own government-run rating bureaus that are separate from the NCCI: California, Delaware, Indiana, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Pennsylvania, Texas and Wisconsin. They are funded by a variety of Workers Compensation Insurance Organizations and companies to act as a central source of workers compensation data. Part of their responsibility is the calculation of experience modification data. They receive claim and audit information from your insurance company and calculate your experience mod from this information.
What is the experience rating period?
The mod is calculated using loss and payroll data for an experience rating period. The experience rating period typically includes data for three policy years, excluding the most recently completed year. For example, for a mod factor calculated on January 1, 2006, data would be used for the January 1, 2002-2003, January 1, 2003-2004 and January 1, 2004-2005 policy periods. The data for the January 1, 2005-2006 would be excluded.
So, we’ve gathered some top tips designed to positively impact your bottom line:
Investigate accidents immediately and thoroughly. Take corrective action to eliminate hazards. Be aware of fraud.
Report all claims to carrier immediately. Alert carrier to any serious, potentially serious, or suspect claims. Frequently monitor the status of the claim and communicate with the adjuster to resolve as quickly as possible.
Take an aggressive approach to providing light duty to all injured employees upon their release from treatment. Supervise light duty employees to assure their conformance with restrictions.
In serious cases that involve lost time, communicate with the claims adjuster so that they recognize your interest in returning the injured employee back to gainful employment.
Set safety performance goals for persons with supervisory responsibility. Success in achieving safety goals should be used as one measure during performance appraisals.
Develop a written safety program and train employees in their responsibilities for safety. Incorporate a disciplinary policy into the program, one that holds employees accountable for breaking the rules or rewards them for correctly following safety procedures.
Frequently communicate with employees, on a formal and informal basis, regarding the importance of safety.
Make safety a priority. Senior management must be visible in the safety effort and must support improvement.
Evaluate accident history and near-misses at least monthly. Look for trends in experience and take corrective action on worst problems first, as soon as the problems manifest themselves.
Hire Lawson-Hawks Insurance Services, Inc. to ensure success!
For more information, contact Anthony Miller, Vice President, at (650) 237-3003 or amiller@lawson-hawks.com.
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