Part IV – Experience Mod Calculation From A Small Claim
A small claim value can end up costing your company dearly.
From the last post, the Workers Comp adjuster closed the claim out after 4 years and spending out $1,000.
The file was originally reserved at $10,000. The file was over-reserved by $9,000.
Using Variable A (Excess Loss Factor) from the 09/30/08 post of .20, let’s look at the real claim dollars with the loss.
- Recalculated Primary Loss Over-reserved = $20,000
- Recalculated Excess Loss Over-reserved = $5,000
What does all of this mean? With the way that the Experience Mod calculations are structured by the NCCI or State Rating Bureaus, inexpensive-looking claims are costing your company much more than you may realize.
The Workers Comp Experience Rating systems are structured to make sure that one huge claim will not ruin your E-mod. The flip side is that a few low-dollars claims can and will wreck your E-Mod and your Workers Comp insurance program for years to come.
A claim that is under $5,000 can turn out to be large. As you can see $4,000 of a Primary Loss is much more expensive than it looks.
How does one track these claims? Use the tried-and-true method of loss run analysis. The easiest way to perform a loss run analysis starts with having online access to your Workers Compensation claims.
If your company has online access, then make sure that any claims that are listed as lost time do not sit there open for months and months if the claim should be closed. Always remember that ten $5,000 claims can cause as much negative effect to your insurance budget as a $300,000 claim. The Experience Modification system penalizes employers for multiple low-value claims versus one large one. The risk is higher than one very large claim.
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