Most Basic Mod Formula
The most Basic Mod formula how is it calculated?
We receive a large number of calls and emailed questions on how Mods (E-Mods or X-Mods) are promulgated by NCCI, WCIRB, or State Rating Bureau.
One of the most common scenarios is when an employer’s Mod increases over 1.0. A very large number of contractors now require a 1.0 Mod or less for their subcontracting companies. Mods at the 1.0 level are now more difficult to attain due to the recent NCCI changes on Mod calculations. A more accurate statement is that an employer with a Mod of 1.2 or above will find increasing difficulty in lowering their Mod back to 1.0. I had hoped the contractors would increase the acceptable subcontractor Mod to 1.1 due to the changes in the E-Mod calculations. This has not been the case whatsoever. One contractor had told me that “an unsafe company is still an unsafe company.”
The basic inputs into the Mod are:
- Classification Codes
- Claims Total Incurred (Paid + Reserves)
The Mod formula measures:
Actual Losses / Expected Losses
The Expected Losses originate from the first two bullet points. In other words, what claims are expected for the level of the payroll of each classification code? The Actual Loss figure is the Total Incurred for a given year.
As the level of payroll increases, the level of Expected Losses will increase overall. Increased losses are more likely with a higher number of employees or work hours. If the Actual Losses (Claims) do not increase, then the Mod will decrease in most cases.
There is actually a large amount of “number voodoo” required to calculate the Actual and Expected Losses.
If the Rating Bureau Mod formula seems confusing, just remember the basic Mod formula.
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