Is a 5 Point Reduction in Your Experience MOD Worth the Time?

By Rob Schild

Each year, usually 60 to 90 days prior to the ARD (Anniversary Rating Date), state workers’ compensation rating bureaus send out Experience Modification Worksheets, also known as MOD Worksheets, to those businesses that qualify under their guidelines. In short, the MOD Worksheet could be considered the company’s ‘Workers’ Compensation Report Card’. While the report contains a great deal of information, most business owners are interested in just one number – their MOD for the next policy period.

The Process

Earlier in the year, between 6-8 months following the end of the policy period, workers’ compensation insurance carriers submit a Unit Statistical Card to the state rating bureaus for each of their policy holders. The Unit Stat Card contains the policy holders’ audited/adjusted payrolls, premiums, and claims data that will be used by the rating bureau to ‘promulgate’ the experience modification factor or MOD.

The MOD, modifies the workers’ compensation premium based on a company’s claims performance for their policies for the second thru the forth prior years.

The following table is a simple illustration of how a $100,000 unmodified premium would be affected by the respective Experience MODs. In this example, every point is worth $1,000 in premium.

Can you imagine what a mistake might cost your company?

Mistakes are often overlooked by the business owner and agent. After all, the MOD is the MOD, right? Wrong! Mistakes can cost a business owner HUGE sums of money.

The clients I represent generally have very large workers’ compensation policies. One of the most beneficial aspects of my service offering is the annual preparation of a Unit Statistical Report and MOD Forecast.

The ADVANTAGE for my clients is that this report is completed at the end of the second quarter, usually 3 months prior to the state rating bureau’s release of the official Experience MOD Worksheets. This affords my clients a snapshot of their projected Experience MOD for the following year for planning and budgeting purposes.

Once my client receives their official Experience MOD Worksheet from the state rating bureau, the actual numbers are compared to those we projected months earlier. If the numbers don’t match, we know somethings not right.

A Real Life Example

A few months ago, a large temporary staffing client sent me a copy of their MOD Worksheet which they had just received from NCCI. It was immediately noticed that the Experience MOD was 5 points higher than we projected. The owner was very concerned because this unexpected increase would result in a significant increase in the company’s modified workers’ compensation premium for the next policy period.

However, a comparative review of the official MOD Worksheet against the Unit Stat Report that we prepared months earlier helped us to identify a discrepancy in the claims figures reported by the insurance carrier to NCCI. I arranged a conference call between our MOD Analyst and the carriers’ claims department where we brought the reporting error to light and shared the supporting documentation. The carrier acknowledged their error and issued a revised Unit Statistical Card to NCCI. NCCI re-promulgated the Experience MOD and issued a revised worksheet showing the corrected MOD. Success!

Most agents don’t take the time to prepare these comprehensive reports for their customers because of limited resources, tools, expertise and doing so doesn’t generate revenue. However, they are also far less likely to identify mistakes that can result in higher workers’ compensation premiums. Don’t let your agent treat you as a customer, make them treat you as a client.

The Unit Statistical Report is just one tool I use to help accomplish my ultimate goal of reducing my client’s workers’ compensation costs. Subsequently, I prepare a comprehensive Experience MOD Analysis Report or MOD Workbook which dissects the factors that contribute the Experience MOD to help identify methods to reduce the same.

A Few Final Thoughts

There are two basic approaches to risk management, the reactive/ transactional approach and the proactive/ advocacy approach.

The reactive approach that is based upon the annual fluctuations of values, revenues, payrolls, employee counts, losses, claims costs, and market appetites as they relate to the transaction of insurance. The agent helps their customer purchase insurance each year based upon the changes that occurred in the previous year.

I advocate a proactive approach of helping my clients identify and implement industry recognized best practices that result in reduced claims frequency and related costs. The goal is to position my clients as ‘Best in Class’ which supports my efforts to negotiate the best rates, terms, and conditions on their behalf.