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Experience Modification Sheets Wt Important Variable For Savings

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What Does Wt Represent on Experience Modification Sheets?

Your company’s Experience Modification Sheets just arrived from the rating bureau or you just downloaded them.    Experience Modification worksheets is also the correct term for the sheets.

picture experience modification sheets building Einstein formula
Wiki Public License – Li ChiYun

 

If you look at your sheets more closely, NCCI and the other rating bureaus have provided a variable that saves safe companies premiums and heavily penalizes unsafe employers.

One of the most important variables is almost hidden on your Experience Modification Sheets.

One of the variables denoted on NCCI Experience Modification Sheets sometimes makes or breaks a company;’s Workers Comp safety and risk management program.

Almost all of the Independent rating bureaus and the WCRB (California Rating Bureau) including the NCCI have a Wt factor.   Some of the rating bureaus may not have the factor listed – but it is very important.

I was going to include an Experience Modification Sheet photo example.  However, the best way to find the number (or factor) is for you to use your company’s sheets.  Using your own numbers makes it easier to understand this important percentage.

If you have your rating sheets, make sure you have the first page on top.  The bottom right of the front page contains your Experience Modification Factor.   If your E-Mod is below 1.0 – a nice job!

If the number is above 1.0, you and your company have some work to do over the next few months.    This blog contains bucketfuls of articles on how to reduce your Mod.

OK, look on the left side.   We had better operate with a definition of what the Wt represents in the formula.    This one is from NCCI.

The “Wt” factor is the weight given to the excess losses. “Wt” is a
the small percentage for small employers and increases with the size of
the employer. 

If you have your Experience Modification sheets in front of you then look at the box labeled

(A)

Wt

One can think of the Wt as a discounting factor of sorts.  How?

The Primary Loss used to be $5,000 and now is $15,000 for most states.  Think of it as paying full price for a loss.   No discounting factor applies to the Primary Losses.

Anything above the 15,000 level is the Excess Loss where the discounting factors apply.   The Excess Loss is discounted and stabilized with the Wt factor as the most important part of the formula.

Great!  Your company receives an indirect discount for Excess Losses.

No Such Thing As A Small Claim

A Group of Small Claims

Do not let me lead you astray.   The discount level is reached per claim,  not for all claims in total.

OK, let us look at 10 small claims versus one mega claim.

Employer A – hey, we only have small claims

Claims listing for Total Incurred:

  1. 10,978
  2. 13, 434
  3. 12, 454
  4. 9,344
  5. 14, 563
  6. 5,985
  7. 8,987
  8. 9,436
  9. 11,132
  10. 4,323

The total is 100,636.00

So, does your company have a Primary Loss of 15,000 and an Excess Loss of 85,636?  No, sorry!

You are getting hit with a full undiscounted 100,636 on your Experience Mod.  Why?

The Primary Loss and Excess Loss split point of 15,000 were never reached on any one claim.   Your Mod is absorbing non-discounted claim values (ouch!)

Now the small losses seem actually large do they not?

One Mega Claim

Employer B

We will use the 100,636.00 as one bad claim with no others.   Now, you only have one claim – not 10 on your Experience Mod sheet.   The calculation would be

Primary = 15,000 paid at full price

Excess =  85,636  paid at a discount, estimated to be 14,708

Total for Mod = 29,708

Does this seem fair?  One large claim costing only 29,708 when the losses are the same as the 10 above claims that cost  100,636?

Is the system fixed?  Is it fair?  No, and Yes are the answers.

Three Years Later

Now, we are three years later looking back at the claims Total Incurred for the 10 smaller claims and the one mega claim.  (Yes, I realize that 100,000 is not really considered a mega claim).

  1. 150,378
  2. 23, 434
  3. 12, 454
  4. 98,324
  5. 14, 563
  6. 5,985
  7. 19,987
  8. 9,436
  9. 101,132
  10. 4,323

Total = 440,016

Ouch again!  But you see how claims development can happen.  These are actually taken from a loss run I worked with recently.   Go back and look at the original 10 claim values in the preceding section.

The E-Mod structure causes 10 claims worth 100,636 to be much more costly than the one large claim of the same value.

For the record, the one large claim that started out at 100,636 ended up closing at a value of approximately $135,000.

So, the 10 small claims ended up costing $300,000+ more two years later than the one large claim even though the original total value was the same. 

Rating Bureaus’ Angle

I have attended many (50+ and counting) rating bureau conferences in person since 2000.   One of their main concerns was that safer employers were subsidizing the unsafe ones.   

I heard that statement in NCCI, WCIRB, and other conferences.  The move of the Primary Loss from 5,000 to 15,000 looked to penalize unsafe employers even further.

Repetitive claims always cost employers more than one large claim.   One large claim can happen to the safest employer.   However, a safe employer does not have a high number of claims.

Self Insureds Take Notice

Even if you are self-insured, the same logic applies to your claim counts.  If you have many small claims, your LDF (similar to Mod) will be much larger than if you have one mega claim).

The Wt

The Wt takes care of unlucky safe employers.  Take another look at your Experience Modification Worksheets and say thanks Wt.

 

©J&L Risk Management Inc Copyright Notice

 

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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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