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Workers Comp Budgeting Mistake Made With Experience Mods


Workers Comp Budgeting Mistake – Sometimes The Numbers Aren’t The Numbers

A frequent workers comp budgeting mistake I see at least quarterly is when a low Workers Comp Experience Mod increases or decreases significantly.  Most of the time, the budgeting mistake comes from a lower Mod increases to what would be considered another lower Mod.

I have one of those situations sitting right in front of me.  Real-life examples are always the best source of a large percentage of articles in this blog.

This statement by me usually generates a large amount of debate when I bring up the subject of budgeting to match the Experience Mod movement.

Let us look at an example.  BTW, an Experience Mod below 1.0 is called a credit Mod.

pic of man desk workers comp budgeting mistakes frustrated


Workers Comp Budgeting Mistake – going from .83 to .98 Example

When one looks at the Mods  .83 (2017 Experience Mod) to .98 (2018 Mod).

Sometimes we see these numbers subtracted (.98  –  .83).  The numbers look like the employer’s Experience is going to cause a 15% increase in the employer’s Mod.

Quick Division Of The Numbers

There are two ways to look at the Experience Mod increase.

  • Subtract .98 – .83 = 15  then 15/.83 = 18% increase or
  • .83/.98  = 16.4% increase

Wait, the numbers are different.  Which is one is correct?  Either way, one can see the numbers are more than 15% which comes from subtracting the numbers.   Comment below on which one you think is correct.

  1. 15% – subtraction only
  2. 18% – using .83 as base number
  3. Dividing out the two numbers
  4. This is a stupid article, why would I care?


If you picked #4 and you administrate a large workers comp budget, you may want to rethink the increase in the numbers.  Yes, it looks simple, but if you are multiplying $12.3 million like the one that I am working on now,  there can be a huge difference.

3% of $12.3 million = $369,000 workers comp budgeting mistake?

This is similar to the Marilyn Vos Savant riddle here.  She is the smartest person in the world.   The 1990 riddle caused so much debate among statisticians, actuaries, and even the CIA.  It is the 2 out of 3 debate.  It is called the Monty Hall problem from the old show “Let’s Make A Deal”.

I am going to put my answer to the question above in the next newsletter that we send out almost every week.   You can also see the same type of article that I wrote a few years ago on the same subject.

Workers Comp Budgeting Mistake – Loss Development Factors (LDFs)

If you are self-insured, then you should have a Loss Development Factor calculated each year.  If you do not, then obtain one ASAP.  A friend of mine that deals exclusively with self-insurance always reminds me to not leave out self-insureds.

The same can be said for LDFs or Loss Development.  Whether you are self-insured or have a Workers Comp policy in place from a carrier, the same Workers Comp budgeting mistake can occur when comparing two LDFs.   The numbers read the same.

Also Read: Minimum Experience Mod Premium – Reader’s Question

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2 Responses

  1. Frank, thanks for commenting – good to hear from you. The client is based in 48 states, so they were not self-insured in any one state. I calculated the two LDFs that ended up being similar to the Mod movement. Moving from one LDF (Loss Pick) to another presents the same budgeting problem.


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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management 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)
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