What's Your Lowest Achievable Experience Mod?
How Low Can You Go?
Your experience modification factor is an important part of determining how much you’ll ultimately pay for your workers’ compensation (WC) insurance. Whether it’s promulgated by the NCCI or a state-specific workers’ compensation department (ex. CA, MI, PA), your total audited payrolls and claims experience are plugged into a complicated mathematical equation. The final number “rates” you against peers in your industry, whether it be manufacturing, recycling or construction. A 1.00 mod indicates that you’re on a level playing field with your peers as it relates to your WC claims/payroll ratios. If your mod is below a 1.00, you’re outperforming your peers. And if your mod is over a 1.00, then you’re not performing as well as your peers. But what’s your lowest achievable mod and why is it important?
To calculate your lowest achievable mod, your insurance professional plugs all of the information that can be found on your actual experience mod worksheet into special software, then removes all of the claims experience. Your lowest achievable experience mod is generated, allowing you to then calculate the potential monetary savings in WC premium. As an overly-simplified example, if you currently have a 1.00 mod and are paying $100,000 in premium for your WC insurance, a lowest achievable mod of 0.70 could potentially save you $30,000, depending on a variety of underwriting factors – including your industry and the marketplace conditions. But if you can achieve zero claims dollars, the $30,000 of potential premium savings is just the tip of the iceberg of savings. There are “indirect costs” associated with your WC claims – such as money and time spent training another employee to perform the same functions as the injured worker, and potential loss of productivity in that employee’s area of the production process.
If you decide to invest the time, money and effort to get to your lowest achievable mod, or as close as possible, you not only have the opportunity to save yourself premium dollars, but also the “indirect costs” associated with each WC claim. According to OSHA, your return on investment (ROI) can be at least double or triple what is spent on your loss control efforts.
- Workers' Compensation E-Book
- Back to Basics: Experience Mods Video
- Workers' Compensation Videos
- Indirect Cost of Losses Calculator
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