Upset Reader Says Experience Mod Increases – Loss Run Had No Changes
One noticeable complaint tread from our article and newsletter readers recently comes from Experience Mod increases while their company’s loss runs show no changes.
Many of them have become clients to have J&L examine their loss runs compared to the Experience Mod increases.
By the way, WTR is a clean replacement for WTF. It is What’s The Reserve?
Two Quick Definitions
Experience Modification Factor – (E-Mod or EMR or X-Mod) – the rating bureaus (WCIRB – California, and NCCI – 40 states) compare your company’s Actual Losses with businesses similar to yours (Expected Losses).
Loss Runs – your company’s insurance carrier provides a listing of your claims that you have had while insured by that carrier.
Why your Experience Mod Increases With The Same Total Losses
Your losses on your loss run are usually broken up into three categories each having paid, reserved, and total incurred figures.
- Indemnity – benefits paid directly to the injured employee such as weekly Temporary Total, etc.
- Medical – paid to medical providers for treatment
- Expenses – paid by the carrier to adjust the files
One of the main concepts to remember is the Expenses figure. Unless your company has a special agreement such as with Large Deductible policies #3 above is not responsible for Experience Mod increases. Why?
Because Expense figures never show up on Experience Modification sheets that contain the Total Incurred figure the carrier reports to the rating bureaus.
Expenses are: (Also known as allocated expenses or ALAE)
- Attorney fees to defend the file
- Private investigator fees
- Rehabilitation nurse fees – (debatable)
- Any fees the carrier pay for adjusting the file
Under the Radar Experience Mod Increases
One thing should be said now – I have not seen except in a few instances where the claims adjusters have intentionally increased the reserves to affect the Experience Mod.
Let us look at how an Experience Mod increases without any changes to the loss run totals.
Workers Comp File #09123ABN – no cents or dollar signs for readability. The $182,000 is reported to the rating bureaus for figure your Experience Mod.
| File #09123ABN | Paid | Reserves | Total Incurred |
| Indemnity | 55,000 | 25,000 | 80,000 |
| Medical | 100,000 | 2,000 | 102,000 |
| Expense | 23,500 | 28,000 | 51,500 |
| Total | 178,500 | 55,000 | 233,500 |
The adjuster negotiates a settlement with the claimant’s attorney for $53,000. Instead of having to go through multiple levels of approval, the claims adjuster decides to shift the Expense reserves for 28,000 to cover the settlement check.
| File #09123ABN | Paid | Reserves | Total Incurred |
| Indemnity | 55,000 | 53,000 | 108,000 |
| Medical | 100,000 | 2,000 | 102,000 |
| Expense | 23,500 | 0 | 23,500 |
| Total | 178,500 | 55,000 | 233,500 |
The carrier would now report $210,000 to the rating bureau, not the $182,00 as in the first table. Wow, so the Total Incurred reported to the rating bureau just increased by 15.4% on this one file. Yes, that would affect the Mod under most circumstances.
Avoiding Experience Mod Increase Confusion
This comparison means that your loss run review should examine the Total Incurred for the medical and indemnity totals when compared to the loss runs.
Why am I bringing this up now? Today, I reviewed two loss runs where this happened on multiple claims.
No, the claims adjuster really did nothing wrong by shifting the reserves unless it violated an internal rule. Make sure that you separate out the Expense figures to make the Experience Mod increases make sense.
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