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Inverse Relationship Between Mods and Class Codes

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Inverse Relationship

One of the areas where we so much confusion on E-Mods and X-Mods is their inverse relationship with Class Codes.  If an employer is not careful with their audit disputes the may end up paying substantially more than if everything was just left alone.

Proportional Inverse Relationship Graph
Wikimedia commons – Dsivaprakash

The reasons are very straightforward.   If your Mod is 1.0 and you have higher risk class codes, this means that when compared to similar higher risk companies, your company has the same amount of claims.

However, when you are re-classified into less risky class codes, your E-Mod may increase.  The reason is your company will now be compared to less risky companies.   The very basic Mod formula is

Mod = Actual Losses
Expected Losses

For example, with your old riskier class code, let us say your company had $48,000 in losses.  Your  expected losses were also $48,000 for your company’s risk level.

Mod = Actual Losses  =   $48,000 = 1.0
Expected Losses   $48,000

Now, if your company is moved into a less risky classification code,  the insurance carriers would expect that you would have a lower expected loss amount.

Woman Inverse Relationship Having Problem Solving
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Mod = Actual Losses  =   $48,000 = 1.2
Expected Losses   $40,000

The bottom line is that if you wish to DIY your Mod dispute, you may end up paying more than before the dispute.   Usually, the higher your Mod was to begin with – 1.25 and up, it pays to be very careful before asking your carrier and Rating Bureau to change the codes.

This is not a plug.  You may need an expert opinion before proceeding with a class code dispute. In the previous example,  recalculating the Mod after the class code changes may be a critical part of the pre-dispute process.

The example is not meant to discourage Mod disputes as usually the offset of the difference in class codes makes up for the Mod readjustment.  

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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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