How to Calculate Your Minimum Experience Modification Factor

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the experience modification factor and

workers compensation it can be an

overwhelming and complicated number

there's a lot of math involved and that

could be overwhelming to look at and

interpret what it means but at its core

it's a predictor of your future losses

of how you handled workers compensation


just like your credit score is a

predictor of how well you're going to

handle debt in the future of how well

you've handled it in the past it's no

more complicated than that as far as

what it means but it impacts your

pricing significantly as far as your

premiums are concerned in workers

compensation particularly if you're in a

guaranteed cost program hello my name is

Michael sack and I'm the CEO of a Max

and today I'm going to be walking you

through a concept to calculate your

lowest possible mod or what's also known

as your minimum mod and what that means

as far as potential savings in your

organization so first thing let's do I'm

going to take it to this example and I'm

gonna show you how to calculate your

minimum mod it's a very simple

calculation so if you look here on the

screen what you're gonna see is NCCI

rating worksheet there's a whole bunch

of numbers that are on the screen but

there's only two that you need in order

to calculate this minimum mod first

thing you're gonna do is gear look down

here on this bottom part of the formula

and you're gonna see the stabilizing

value and you're also gonna see your

expected totals so in order to calculate

your minimum mod or your lowest possible

mod also known as the mod that you would

have had you had zero injuries so the

mod you would have if you have zero

injuries and zero claim costs so you

take that stabilizing value over your

expected totals stabilizing value over

your expected totals and that's how you

calculate your lowest possible or

minimum mod now the next thing then is

to factor in what do you do with that

what does that actually mean

as far as your organization is concerned

want to take you to this example here on

the board here's how your reading works

in a guaranteed cost program it's

there's a couple more elements we're not

gonna walk you through this is

particularly sensitive plan as far as

what that means for your total work comp

costs but this is a basic formula you

take your payroll in this case we use

ten million dollars in payroll times

your class code rate in this example I

just used a five point zero five rate

just to keep the numbers simple this

here is also known as your manual

premium so manual premium is your

payroll times your rate you may have a

few different class codes you may have

different numbers of payroll in each

class code but ultimately it's gonna all

factor into what it is ultimately your

manual rate then you take whatever

adjustments are appropriate in this case

you're experienced mod there's also

going to be some scheduled debits and

credits at the discretion of your

carrier and that's not in this formula

here but that's going to be in your

ultimate total work comp payments

formula if you're a lost sensitive plan

those are going to factor in here as

well but just keeping the simple as far

as this example you take your manual

premium times your experienced mod and

that's your work comp premium and a

guaranteed cost program so in this

example your mod is point eight so if we

go through the some of the elements of

an experience mount 1.0 is considered

average for the industry whatever

industry that you're in so the actuaries

take what are all the all the claimed

cost had happened for everyone in the

trucking industry what was a total cost

what was the average and that's a

simplified version of how they come up

with what is expected for that industry

and all this is is are you doing better

or worse than average

you didn't better or worse than average

for your industry and this one is point

eight so you're doing point two below

that one you're doing better than

average and then it comes out to 400,000

so this is 500 thousand times 0.8 and

that gives you four hundred thousand

mistake that I see companies make a lot

of times in this as you say we're at

point eight were below one or

doing really well good job for us hooray

for us yay

we're doing so great we saved a hundred

thousand dollars from what would we

would be if we were at average for our

industry while that's true there's a lot

more to the story and that's where this

minimum mod comes into play if you went

through that stabilizing value over your

expected totals a lot of times

particularly the larger your

organization is the lower possible

minimum mod you'll have and that has to

do with the weighting value and I can't

get into that today but the larger your

organization the lower lowest possible

mod that you have so let's say you do

that calculation and your lowest

possible mod is 0.4 so you do the same

calculation the manual premium which is

500 thousand and you times that by 0.4

and you come up with 200,000 as you see

here in essence what this means is

you're paying twice as much as you could

you're paying twice as much as you could

if you had zero claim costs what it does

is it gives a very vivid example when

you're talking to your senior managers

when you're talking to your clients as

an insurance broker or any other service

provider to let them know how much room

there still is to improve so when you're

patting yourself on the back here and

you're throwing yourself a parade in the

party for how well you're doing good job

just keep going keep implementing return

to work programs keep implementing into

response programs keep implementing

safety wellness injury prevention

programs in order to continue to drive

this number down because there's still a

lot more room to grow don't get lulled

to sleep up here because there's a lot

more improvements that can be made

obviously there's a lot more to talk

about it we could talk about with the

experienced mod but if you can

understand this concept understand how

some of these numbers start to put

together it could put a lot more meaning

behind what we're doing an injury

prevention and injury management and get

on my name is Michael stack I'm the CEO

of a max and remember your work today

and workers compensation can have a

dramatic impact on your company's bottom

line just

as we showed here but it will have a

dramatic impact on someone's life so be