What’s the worker’s compensation experience modifier, you ask? The short answer is it’s your report card. In the State of Florida, the state tells us what the rates are for each class code of workers’ compensation insurance. To make it very clear, they have a list of class codes and then the dollar amount per $100 in payroll that you’re going to be required to spend for each class code on your workers’ compensation insurance policy. Now, if you’re like me and you don’t want to have to do a bunch of math, the easiest way to think about it is a percentage. Because the rates are relative to a hundred, it’s a percentage, so $5 per 100 is 5%.
What Does the Experience Modifier Do?
The workers’ compensation experience modification factor, I know that’s a lot to spit out, as we know it, is what levels the playing field. In other words, if you perform precisely the way a company of your size and shape should perform, your experience modification factor is one. If you perform worse, unfortunately, it happens, you are going to have to pay more, and your experience modification factor is higher than one. Companies that perform worse than expected will have a mod of higher than 1.0. I’ve seen them as high as four, believe it or not. It’s crazy, but it happens. To calculate your premium, you’re going to multiply whatever the state rates are times that number, plus some other math that happens down at the bottom of the policy you don’t need to concern yourself with right now. You’re going to get surcharged. The good news is if you have excellent performance, you’re going to be able to have a credit mod, meaning it could be 0.8, 0.7, or lower. You’re going to get a discount, for lack of a better term, on your total workers’ compensation premium using your mod when multiplied by the state rate.
Your Mod May Not be Accurate
Here’s the problem that we have: 65% of the experience mods that come out are wrong, and the reason why is because it’s all based on the data that goes in. The National Council of Compensation Insurance, NCCI, calculates experience mods in Florida. NCCI receives information from the insurance companies on what’s called unit stat cards. That information includes your audited payrolls for the three years of the mod period as well as your claims history. Keep in mind that the three years included in your most are one year in the lag. When they get that information, it is on a total incurred basis, meaning here’s how much we’ve paid out, plus here’s the reserves that we plan on paying out if the claim is still open. Now, this is a problem because that claim might close down the road, and if nobody goes back to NCCI and tells them that the claim is closed, they may not know. So we audit experience mods for accuracy before we do anything. We have found millions of dollars of premium that our prospects and clients have paid through no fault of their own, and had absolutely nothing to do with their performance.
The Mod as a Baseline
The other thing that we like to do is use the mod to establish a baseline for those companies who do need some help. We can take the mod and run it through our software, and it will show you how much money each claim is costing you. We can filter it by location. We can filter it by department. We can do the body part, and we can do injury type, we can do the cause of injury, we could even do it by employee. We look for these trends because the historical trends are what predict the future.
So if we can get our arms around things that are happening inside of your organization, it helps us risk manage around those. For example, if we run an experience mod report and we noticed that five different people over the last year had lacerations to their left hand and they were all in the same workstation, we’ve got a problem with the workstation. There could be something wrong with the guarding, or it could be the set-up of the work station, or there’s something wrong with the way they’re operating the machine. At least we can begin to troubleshoot what’s happening.
Get a Mod Audit for Free
The experience mod is certainly not the be all end all. It’s just really what comes out after the fact. We would never advocate you use that for your risk management program, but it’s a great way to start working towards having a proactive approach. If you’ve never had your experience mod audited, there’s an excellent chance that your mod is not accurate. We would advocate that you click the button right down here at the bottom of this post, and we will do an experience modification factor audit for you for free.
And don’t worry, we get it right now. We’re all dealing with the health scare with coronavirus, and it doesn’t matter. We can do it and send it to you as a video template and walk you right through all the pieces and parts of it. We just need a little information from you, and you’ll get all of that when you click the link.
If you want to learn more about the experience modification factor, we’re not going to put the hard close on you and try and sell. We just want to help companies out who are going to be looking for money soon and we know that you’re one of them.