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.
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:
- 10,978
- 13, 434
- 12, 454
- 9,344
- 14, 563
- 5,985
- 8,987
- 9,436
- 11,132
- 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).
- 150,378
- 23, 434
- 12, 454
- 98,324
- 14, 563
- 5,985
- 19,987
- 9,436
- 101,132
- 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.
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