Experience Mod Predictions – Accuracy Depends on Who/Whom You Ask
Most Experience Mod predictions can be a tedious process that has cofounded most people working in the world of workers’ comp for decades. Let us look at the definition of Experience Mods from the WCIRB – California’s Rating Bureau and a quick video from NCCI that covers 40+ states – the two largest Workers Comp Rating Bureaus.
Experience modification is calculated by comparing the actual losses to the expected losses. Actual losses are the medical and indemnity claim costs resulting from a work-related injury that an insurance company has paid or expects to pay in the future. Expected losses represent a business’s projected losses for the industry in which it operates. In other words, given its classifications and payroll, its expected losses represent the statistical average losses that a business of a similar size in the same industry is expected to incur. Given two businesses within the same industry, the larger the business, in terms of payroll, the more losses that business is expected to incur.
The video is one minute long – yes, one minute. There are many more videos on Mods in NCCI’s Microlearning Center.
Experience Mod Predictions – Already Built In
The Rating Bureaus usually calculate (promulgate-fancy term) a company’s Experience Mod approximately 3 – 4 months before the start of your new policy (inception). But wait you say, what if I want Experience Mod predictions beyond the upcoming renewal?
J&L does those quite often. You can buy an estimator or have an expert do it for you. Two areas to cover are IBNR – incurred but not reported and other outside factors.
Experience Mod Predictions – Outside Factors
Outside factors can change the prediction immediately. How so? Let’s cover a few –
- State rating values – the state can change rating values at any time. That means one of the states that you are operating in has changed its rating values and reported them to NCCI. The goalposts have been moved.
- Late carrier reporting – J&L monitors all of our clients’ Experience Mod changes. We have seen a maximum of 17 Mod changes due to the insurance carrier reporting data late in one year.
- A string of accidents – if your company, has a lower Mod, for instance, and you have a few or many accidents any of your Experience Mod predictions will not have a large amount of validity. On the other side of the coin, if your predicted Experience Mod accounted for multiple accidents and you have a safe year with no accidents, the predicted Mod will not be accurate. Your company will require a Mod recalc.