The document explains the experience modification factor (mod) in workers' compensation and its impact on insurance premiums. It details how the mod is calculated based on actual versus expected claims and highlights the importance of maintaining a mod below 1.0 to reduce costs. Additionally, it provides insights into analyzing mod data and implementing loss control measures to minimize increases in the mod.

1. The MOD Factor!
Understanding the Experience Modification Factor
Workers’ Compensation Risk Management
Company ABC
presented by | John Link, CPCU
Presented by | Your Name(s)
April 19, 2011
Cottingham & Butler Benefits Consulting Webinar Series
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2. Disclaimer:
The information, examples and suggestions presented in this
material have been developed from sources believed to be
reliable, but they should not be construed as legal or other
professional advice
Cottingham & Butler accepts no responsibility for the
accuracy or completeness of this material and recommends
the consultation with competent legal counsel and/or other
professional advisors before applying this material in any
particular factual situations
Please remember that only the relevant insurance policy can
provide the actual terms, coverage, amounts, conditions, and
exclusions for an insured
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3. Today’s Objectives:
What is this thing called a “MOD”?
How does it effect me?
How do the numbers work?
How can I predict where the MOD is going?
What can we do to minimize the MOD going up?
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4. Who We Are
• National provider of employee benefits and risk John Butler
Chairman and
management solutions
Chief Executive Officer
• Established in 1887
• Headquarters in Dubuque, IA (population 60,000)
David Becker
• Over 3,500 customers President and
Chief Operating Officer
• $350 million in Commercial Insurance premium
placements
• Over $473 million in Benefits Claims Administered
• 38th largest Insurance Broker in US
Business Insurance Top 100 Brokers
• 95% retention rate across entire book of business
• Posted $63 Million in revenue in 2010
• “2007 Agency of the Year” National Underwriter
• “Agency of the Year” Rough Notes Magazine
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5. Who I am
• Vice President of Risk Management and
Tribal Insurance Consulting Practices
•13 years with Cottingham & Butler
•Graduate of the University of Iowa
John M. Link
Vice President •43 Clients in 6 states managing $30 million
Risk Management Practice dollars in premiums
563-587-5288
jlink@cottinghambutler.com •Native Dubuquer
•Father of 4 and husband of 1
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6. What Is This Thing Called The “MOD”?
The “MOD” is short for Experience
Modification Rating factor.
It’s actually a system where by frequency of losses is given a
higher “weight” and thus penalized verses severe losses.
In the most simple of terms, the MOD is calculated based on
expected claims versus actual claims, total payroll and classes of
eligible employees. When the actual primary losses are greater
than expected primary losses, the MOD is above 1.0 and when the
actual primary losses are less than expected, primary losses the
MOD is less than 1.0
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7. What is this thing called the “MOD”?
MYTH or MISUNDERSTANDING
• A 1.0 experience Modification factor by many is considered “good”
• 1.0 MOD is equivalent to a “C” grade which shouldn’t be acceptable to any
of us!
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8. The Experience MOD Formula
Actual + Ballast Value + Weighting Value x + (1-Weighting Value x Expected Excess
Primary Actual Excess Losses
Losses Losses
Expected + Ballast Value + Weighting Value x + (1-Weighting Value) x Expected Excess
Primary Expected Losses Losses
Losses
• Primary Losses = first $5000 in losses
• Excess Losses = amount of loss greater than $5000
• Ballast Value = state specific value which increases with the
size of the company as measure in expected losses.
Creates stability to the formula
• Weighting Value = state specific with range between 0.04 to
0.80. The value increases as expected losses increase and
determines the percentage of actual excess losses utilized
in the calculation
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9. Years MOD is Based Upon
2007 2008 2009 2010 2011
J F M J F M J F M J F M J F M
A M J A M J A M J A M J A M J
J A S J A S J A S J A S J A S
O N D O N D O N D O N D O N D
Experience Rating Period Excluded MOD is effective
for the 2011
policy year
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10. How Does The MOD Affect You?
Ultimately, the MOD is applied to your insurance
premium.
The premium you pay will equal the basic premium
times your MOD.
So, a MOD below a 1.0 lowers your premium costs and
a MOD above a 1.0 increases your premium costs
against your peers and competitors.
Example: Company A has basic premium of $100,000
and their experience MOD was 1.20, their final workers’
compensation premium is $120,000.
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11. Why Is This Important 2.0?
Take our previous example:
Company A in 2010 had a MOD of 1.0 and a basic premium of
$100,000 so final premium in 2010 was $100,000.
In 2011, their MOD is increasing to a 1.20 with no overall growth
to the company so basic premium remains at $100,000 but final
premium is now $120,000.
At a 5% profit margin, Company A needs to increase top lines
sales by $400,000 in order to make up that cost increase.
Is controlling the MOD and loss frequency worth it?
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12. The MOD Worksheet
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13. The MOD Worksheet Headers
1. Name of the Risk – name of the company for which the
MOD is calculated
2. Risk Identity No. – this is the number NCCI or other rating
bureau assigns to your company
3. State – if your company operates in only one state, the state
will be displayed. If your company operates in multiple
states, the word “Interstate” will be displayed
4. Effective Date – the date on which the MOD becomes
effective.
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14. The MOD Worksheet Columns
1. Column 1 - Class Code – lists the payroll classification codes
for each state used in the calculation.
2. Column 2 - Expected Loss Rate (ELR) – amount of loss per
$100 of payroll.
3. Column 3 - Discount Ratio (D-Ratio) – the percent of expected
losses that are classified as expected primary losses.
4. Column 4 – Audited Payroll – amount of payroll for the given
class code, state and policy period shown.
5. Column 5 – Expected Losses – (Payroll divided by 100) x ELR
6. Column 6 – Expected Primary Losses – expected Losses x D-
Ratio
7. Column 7 – Claim Data – shows the claim number which is a
number or series of numbers assigned by the insurance
company.
8. Column 8 – Injury Code and Open/Final designation – shows
what type of claim occurred and whether the claim is open or
final.
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15. Injury Codes
Injury Code (IJ) Medical Claim
IJ Code 1 Death
IJ Code 2 Permanent Total Disability
IJ Code 5 Temporary Total or Temporary Partial Disability
IJ Code 6 Medical Only
IJ Code 7 Contract Medical or Hospital Allowance
IJ Code 9 Permanent Partial Disability
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16. IJ Code 6: Medical Only
In 1998, the ERA became part of the mod
calculation!
No, Not that ERA…
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17. IJ Code 6: Medical Only
In 1998, the Experience Rating Adjustment (ERA) was
introduced to the MOD calculation
• Change in primary/excess split point – state specific as in
California
• Change in weighting value table – raises maximum value
from .63 to .80
• Reduction in Medical-only claim amounts
-Medical-only claims are calculated at 30% of primary and
excess of loss value
-Incentive for employers to report ALL claims without
being penalized
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18. Experience Rating Adjustment State Summary
Approved: Alabama, Arkansas, Arizona, Connecticut, Colorado, District of
Columbia, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine,
Maryland, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New
Hampshire, North Carolina, Oklahoma, Rhode Island, South Carolina, South
Dakota, Tennessee, Utah, Vermont, Virginia, West Virginia and Wisconsin
If your State is not on this list, approval is pending (essentially
Disapproved) or formally Disapproved
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19. The MOD Worksheet Columns
1. Column 1 - Class Code – Lists the payroll classification codes for each
state used in the calculation.
2. Column 2 - Expected Loss Rate (ELR) – amount of loss per $100 of
payroll.
3. Column 3 - Discount Ratio (D-Ratio) – the percent of expected losses
that are classified as expected primary losses.
4. Column 4 – Audited Payroll – amount of payroll for the given class
code, state and policy period shown.
5. Column 5 – Expected Losses – (Payroll divided by 100) x ELR
6. Column 6 – Expected Primary Losses – Expected Losses x D-Ratio
7. Column 7 – Claim Data – shows the claim number which is a number
or series of numbers assigned by the insurance company.
8. Column 8 – Injury Code and Open/Final designation - shows what
type of claim occurred and whether the claim is open or final.
9. Column 9 – Actual Incurred Losses – the actual loss amount for the
claim.
10. Column 10 – Actual Primary Losses – the actual primary loss for the
claim.
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20. The MOD Worksheet Worksheet Summary
WORKERS COMPENSATION EXPERIENCE RATING
5. Expected 6. Exp Prim 7. Claim 9. Act Inc. 10. Act Prim
1. Code 2. ELR 3. D-Ratio 4. Payroll 8. OIJF
Losses Losses Data Losses Losses
Expected Actual
Excess Excess
Losses Losses
C. (D-E) F. (H-I)
A. 010 B. D. 68049 E. 19871 G. 19600 H. 44187 I. 34524
48178 9663
11. Primary 12. Stabilizing
13. Ratable Excess Losses 14. Totals
Losses Value
Actual 34524 (I) 62960 966 (A x F) 98450
Expected 19871 (E) 62960 4818 (A x C) 87649
Experience Mod Factor = 1.12
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21. How to Analyze Your MOD
Expected vs. Actual: Compare Box D to Box H. If H > D, then your
competition is outperforming you.
Expected Primary vs. Actual Primary: Compare Box E to Box I. Primary
losses are a measure of loss frequency and have a greater impact on the
MOD.
• Training issues
• Poor Procedures
• Hazardous Work Environment
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22. How to Analyze Your MOD
Expected Excess vs. Actual Excess: Compare Box C to
Box F. If F>C, the average claim is larger than expected.
•Are claims being handled properly internally and
externally?
•Loss reduction techniques
-Transitional duty
-Pre- and Post-Injury management training
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23. How to Analyze Your MOD
Determine your Minimum MOD.
Determine your Controllable MOD
Ratio of Actual to Expected Losses
Specific Loss Sensitivity – by loss type
Aggregate Loss Sensitivity – losses overall
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24. Ways to Control Your MOD
Implement and Manage a Sound Loss-Control Program
•Lower frequency
•Reduces severity
•e.g. Safety committees, training, safety bonuses/incentives,
communication
Verify Accuracy of Payroll and Loss Data
•Data is often incorrect
•Claim review approximately 5 months into policy year
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25. In Summary
The MOD is a complex formula
The MOD Worksheet is a valuable tool to identify the issues within
your overall safety program
The MOD is controllable
The MOD needs to be reviewed and audited for accuracy (codes,
payroll, loss totals, etc)
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26. THANK YOU & BE SAFE TODAY!
If you have any further questions please contact me at:
John M. Link, CPCU
Risk Management Group, Vice President
ph: 563.587.5288
800.793.5235 ext: 5288
jlink@cottinghambutler.com
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