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Long Tail Experience Mods From 20 Year Business Cycles A Good Idea

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20 Year Business Cycles Show Need For Long Tail Experience Mods

Would long tail Experience Mods benefit employers and insurance carriers?  Let us first look at the definitions of the two terms.  Hang in there – this concept has to build up for a few paragraphs.

Long Tail Statistics

When I first reviewed a few of the long tail definitions, many weasel pics showed in the search results.  The pic shows the shoat or long-tailed weasel.

pic of long tailed weasel worker comp experience mods
Public Domain – USFWS

I first came across long tail statistics when searching for keywords to use in the articles.   What keywords would not track fads in Workers Comp and insurance terms?  If you need to see a few Workers Comp fads, check out this old viral article on the current and now faded buzzwords.

According to StatisticsHowTo

long tail distribution has tails that taper off gradually rather than drop off sharply. They are a subset of heavy-tailed distributions. It’s easy to visualize the idea of a long tailed function, and slightly harder to make it concrete.

My more simplistic definition –

Numbers that last longer than bell curves or fads.

graph of long tail experience mods
Public Use Wiki License – Pbroks13

The blue line is the ending part of a bell curve.  The red line is the long tail statistics line.

Think of the blue line as the regular Experience Mod or even most Loss Development Factors.  The red line would be the long tail version of any statistic including Experience Mods.

The long tail line originally came from marketing.   A store can sell unpopular items over a longer amount of time and make huge profits (in theory).

20 Year Business Cycle

The 20-year business cycle may not seem a valid way to look at workers’ compensation insurance.   The concept sounds too extreme.  Let us look at what was happening 20 years ago.   We had just experienced 9/11 and the economy and markets were reeling.  Does that sound familiar to what just happened 20 years later in the US with the Coronavirus pandemic? Let us go back to 1981.  Look no further than this article on the deep recession of the early 1980s.

Yes, this was the overall economy and not a single business.   Then again, most successful long-term businesses follow this same pattern.  Most businesses do follow the economy externally or internally.

Predictive Analytics vs Experience Mods

Many times since 2010, I have heard that predictive analytics are the new way to analyze all facets of the Workers’ Comp insurance process.  I do not agree totally with that statement.

However, most insurance agencies that I work with as a consultant all now say that we need to analyze all open claims, no matter the age, as the independent underwriters are now using five-year mods.

Loss development factors usually cover 10 years.  If one looks at a claim or set of claims’ loss triangles, the maximum payable or reserving amount of time is 10 years.

What Do Long Tail Experience Mods Mean For Employers, Agents, and Carriers?

Woman staff pulling long tail experience Mods medical record
Public Domain – US Navy Photo

The task of recordkeeping may become an art and a science.  Scan all your policies, premium audits, loss runs, Experience Mod sheets, and save them forever.   The more accurate the data provided will only lessen any assumptions.  Assumptions always seem to cost more money in the long run.

Predictive analytics has moved the needle back to seven years of records to produce a five-year Predictive Mod.

Loss Development Factors have been around for a long time.  The actuaries look at 10+ years of loss runs most of the time.

20-year insurance studies on an employer will likely become commonplace.  Do I agree with looking back that far? – not necessarily The long tail Experience Mods are here to stay (like it or not).

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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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