California – WCIRB Over-reserving Correction- No Really, They Do

April 29, 2021 By JL Risk Management Consultants Leave a Comment

WCIRB Over-reserving Correction – Rating Bureau Helps Out Employers – Wow!

California’s Workers’ Comp Insurance Rating Bureau provides a great assist to employers. The WCIRB over-reserving correction algorithm helps employers greatly. Kudos to them – read on to see how they provide a safety net to employers.

If you are not that familiar with the WCIRB or rating bureaus, check out this article. And if you happen after reading this article, to want to know more, yes, there is a webinar on the subject in May. The webinar (freebies) info is provided later in this article.

WCIRB Over-reserving Correction – The Cool Rule

I had long forgotten about this rule that shows the WCIRB helps employers out in a roundabout and under-the-radar way that goes totally unnoticed. Below is the rule that can be found here on their website. By the way, I do not like referring to the WCIRB as “it or its.” Rating bureaus are comprised of a group of people = their.

——————-

If the aggregate value of all closed claims that are required to be used in the experience rating are valued collectively at an amount that is less than 60 percent of the aggregate of the highest value at which each closed claim was previously used in a rating, then the experience rating may be revised using the most current reported values. Experience modifications will not be revised pursuant to the Closed Claim rule if it results in an increase to the experience modification.

When a claim is first reported by an insurer as closed on a unit statistical report, the WCIRB automatically reviews the policyholder’s current and two immediately preceding experience modifications to determine if they should be revised pursuant to the Closed Claim rule. As necessary, revised experience modification(s) are automatically published and the insurer is notified.

——————–

This rule sounds like actuaries created it – right? I am joking. The WCIRB’s personnel have been nothing short of excellent in customer service over the years in all my interactions with them. Let us look at a few of the terms in the rule.

Aggregate value – a total of all closed claims
60% is the most important number in the calculation
40% is the other important number
Closed claims only for the current year
Cannot increase your Experience Mod (X-Mod) – only for reduction (reduced premiums)
The insurer is notified of the change – but not the employer
Instances where over-reserving may not be the cause – subrogation recovery and rarer circumstances

WCIRB Webinar Next month on Closed Claim Rerates

Example – I have an example that would only cause confusion. No example, so this is where the webinar in May comes into play – you can find out better examples there. I will refer back to this article or update this article after the WCIRB webinar in May.

Graphic Emblem Mod Talk WCIRB over-reserving correction

You can register here – totally worth the time spent. The webinar is on Thursday, May 20, 2021, from 10:00 AM – 10:30 AM Pacific Time. I will let the WCIRB provide the example.

I covered the subject of how to tell if your workers’ compensation files have over-reserving in this article.

The key is your company needs online access to your claims so that you can follow the reserving and print your own loss runs.

Workers Comp Claim Development – Long Six+ Month Wait

April 22, 2021 By JL Risk Management Consultants

Workers Comp Claim Development – Why The Six Month Delay?

The Workers Comp claim development process has frustrated more than a few insureds or agents.

Every time that I publish an article on how claims are reported and tabulated by the rating bureaus (NCCI, WCIRB, and others), the same question eventually pops up in the discussion.

picture of clock face with six numerals workers comp claim development

Wikimedia Use License – Maristela Possamai

Why do I have to wait an additional six months to receive my Experience Mod each year? The rating bureaus refer to the six-month delay as workers comp claim development.

How Workers Comp Claim Development Works

There are two steadfast rules in Workers Comp ratings. They are:

Your policy does not show up in your Experience Mod until the following year. Yes, the claim totals are delayed for one year. For example – your 01/01/2019 – 01/01/2020 policy will not affect your company’s Mod until 1/1/2021 – 1/1/2022.
The very important UNIT STAT Date is 07/01/2020 – when the claim values peg to the NEXT year’s Mod. The reason for the six-month delay is called Workers Comp claim development.

NCCI and Other Rating Bureaus Faster Now On Mod Publishing

I often receive this question. Why do we have to wait four more months after the UNIT STAT date to receive our Mod? We would like to have it as soon as possible.

On the example above, the insured has to wait until 10/01/2020 to receive their Modification factor. Those were the old days as the rating bureaus publish Mods much faster now than in previous years.

Over the last two years, a positive trend has occurred with insureds and their agents receiving the Mods within 30 days after the UNIT STAT date.

In our example, the insured would likely receive the Experience Mod Sheets by 08/01/2020 or sooner.

The Reasons For Delays

Many times we receive emails or calls on Mods being delayed – why do delays occur?

One of the states that report to the rating bureau may not have published their final state rating data
A carrier may have not reported all the data required to finalize the Mod
Your company may not qualify for a Mod due to premium level
The UNIT STAT data is due 60 days after the UNIT STAT date. Most carriers presently report the data almost instantaneously – within the first week after the UNIT STAT date.

The fix – call the rating bureau or contact me to see if J&L can assist you. We also can estimate your company’s Mod from your loss runs including the Workers Comp claim development.

©J&L Risk Management Inc Copyright Notice

Experience Mod Increases While Loss Runs Show No Changes – WTR?

February 10, 2021 By JL Risk Management Consultants

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.

chart of experience mod increases over time

Wikimedia Public Use License – Hellisp

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

Example Graph of Experience Mod Increases expenses

Wikimedia Commons – Farcaster

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.

©J&L Risk Management Inc Copyright Notice

Contingent Experience Mods – When The Number Is Not the Number

October 13, 2020 By JL Risk Management Consultants

What Are Contingent Experience Mods?

Last week, I wrote a somewhat controversial article questioning whether insurance carriers should be fined for reporting Mods late. I received a few emails and comments with one from the WCIRB directing me to an NCCI video on Contingent Experience Mods.

Graphic not Pi contingent experience mods

Wikimedia Commons – Public License

I agree there exist reasons for why a Mod would be filed late by the carrier. However, sometimes Contingent Experience Mods are not finalized (see the 3rd bullet point later in this article) or the carriers report more accurate numbers long after the employer must pay premiums using an incorrect Mod.

Contingent Experience Mods are issued by the rating bureaus to let all concerned parties (employer, agent, underwriter, etc.) that more numbers will be added in later.

Once the carrier reports the data to the rating bureau, the Mod will be revised, and a new Experience Mod will be issued for the employer.

Then again, when is the Mod finalized?

The definition from the two largest rating bureaus on Contingent Experience Mods are:

WCIRB – I could not locate info here at the time of this article.
NCCI – This PDF file from NCCI had a few examples.

From NCCI – Contingent Experience Mods

Contingent: This indicates that an experience rating modification factor was produced with missing Unit Statistical data, but met the minimum data requirements set forth in the Experience Rating Plan Manual.

Since mods are produced months in advance of the rating effective date, it is possible that not all data will be received at the time that the mod is produced.

Many People contingent experience mods outside the road

Wikimedia Commons – Øyvind Holmstad

Contingent mods account for less than 1% of the total rating population. A mod can also be contingent for a unit or a specific unit report level that contains errors that make it ineligible for experience rating use. This alerts the data provider that the unit requires corrections for it to be used for experience rating purposes.

To recap, here are a few things to remember:

A mod will be either preliminary or final
Yes, a mod can be both preliminary and contingent
Yes, a mod can be both final and contingent

________________________________________

Other Reasons For A Mod Revision

State Rating Values – The reason that we see most often for an Experience Mod revision is the State Rating Values have changed for the Experience Period. This has nothing to do with the rating bureau or the carrier.

These changes occur frequently – more often in certain states. The Department of Insurance or Workers Comp Commission has revised the rating values for a certain policy or rating period.

Defunct Carrier (Receivership) — We do not see this reason as often currently. Ten to 15 years ago, this reason occurred more often. The carrier may not have data reporting personnel in place to report the number to the rating bureau. The carrier may have downsized their data reporting department. The numbers may possibly be reported very late.

Finalized Contingent Experience Mod Effect

If a carrier has not reported a certain year of data or will correct the UNISTAT data in the future, the two main effects to the Experience Mod are:

Higher than expected claims data – this will increase your Experience Mod (if no change in payroll values)
Higher than expected payroll data –this will decrease your Experience Mod (if no change in claims values)

If the year the data is not reported was a year with no claims, you should pursue this heavily with the carrier to make sure the data is reported properly to the rating bureau.

©J&L Risk Management Inc Copyright Notice

XMod Formula Update – WCIRB Discusses Results With New Webinar

May 31, 2019 By JL Risk Management Consultants

California WCIRB Webinar Discusses XMod Formula Update For 2019

California’s WCIRB presented a great webinar yesterday on the effects of the XMod formula update. Check out this article I wrote last year for more on the XMod formula update.

Please note that the WCIRB has always been more than helpful in all my dealings with them. The presentation and Q&A session from the webinar were excellent. The formula in the graphic in this article has nothing to do with Workers’ Compensation – unless you want to divide something by zero.

Wikimedia Public Use License – Palmtree3000

The formula looks easier to understand for the prudent reader. One question that came up was where are the charts that have the XMod risk bands. One of the most covered points was the $250 deductible increasing the number of medical only claims reported when compared to the file lost time claims. Comparable figures were recorded in 2014 before the new medical only changes.

The medical only changes were the first $250 of any claim never makes it into the XMod formula.

Yes, I decided to listen to the whole 40 minutes which included 8 – 9 minutes of questions. The slides from the WCIRB presentation are here.

The new formula depends more on the size of the employer than in the old formula. As I mentioned earlier the prior formula variables have essentially been moved to a chart of loss ratios per size of the company and the loss ratios.

One of the most interesting parts of the new XMod formula is that excess losses are not imported into the formula. The excess losses are the losses above a split point which was previously $7,000.

According to the WCIRB:

What is a split point?
As part of the experience rating process, an employer’s actual workers’ compensation losses are divided into actual primary losses and actual excess losses. Prior to 2017, the first $7,000 in losses for each claim was considered primary and counted fully in an employer’s X-Mod. Any losses above $7,000 were considered excess and had less weight in the experience rating formula. This $7,000 split point, or primary threshold, had not changed since 2010. Dividing losses into primary and excess components and weighting these components differently had the impact of giving more weight to claim frequency in the experience rating formula and less weight to claim severity.

Since the Actual Primary Loss value under the variable split point plan can be significantly higher than the existing $7,000 fixed split point, will experience modifications, on average, increase?
No. While the variable split point plan represents a fundamental change in the values used to calculate experience modifications, there is no expectation that experience modifications for California employers as a whole will change.

Notice the end of the definition – as a whole

How is the “size” of an employer determined for the purpose of the experience rating calculation?
The new formula uses expected losses as a measure of employer size. Expected losses are calculated based on the reported payroll for all policies in the experience period and expected loss rates by classification (per $100 of payroll) approved by the Insurance Commissioner that are applicable to that year’s experience modifications.

One of the negative implications presented by the WCIRB involves the employers with no losses. These very safe employers are going to have a slightly higher XMod. Penalizing the safest employers probably was never a foundation of any Mod system – until now. I am not sure how much of an increase the safest employers will see in 2019.

In my humble opinion, we will not see the final results of how premiums are affected until 2022. This will give the new XMod formula update time to work through all of the policies currently in the system.

©J&L Risk Management Inc Copyright Notice

Stabilizing Value – Work Comp EMod Formula Magical Employer Lifesaver

March 7, 2019 By JL Risk Management Consultants

Stabilizing Value – Rating Bureaus Provide a Break of Sorts

The Stabilizing Value in Workers Compensation Rating Bureau Experience Modification Factor Worksheets saves companies premiums every day. How does this boring-sounding number help employers save premium dollars?

Public Use License

I am using the numbers from an EMod sheet that I have been reviewing this evening.

Basic EMod Formula

An XMod factor (EMod synonym) is represented by the very basic formula –

EMod = Actual Losses / Expected Losses

The EMod for this insured – who will remain nameless – has these numbers

EMod = Actual Losses / Expected Losses

EMod = 551,000 / 398,000 = 1.38 <<< Ouch!

The basic EMod Formula leaves the employer with a 38% increase to their premium formula. Hang in there with me – this may seem boring. The end result will be worth your time.

I want to stay on track with explaining the Stabilizing Value. Check out these definitions for the values in the below table.

Primary Losses

Excess Losses

Ratable Excess is calculated by using multiplying the Excess Losses by the all-important Wt factor.

Whew are you confused, you will be fine. If you are feeling number stress go see the heartwarming Mr. Rogers clip then come back.

Ok, so back to the EMod neighborhood.

	Primary Losses	Stabilizing Value	Ratable Excess	Totals
Actual	138,258	299,691	95,038	532,987
Expected	99,179	299,691	68,728	467,598
				Exp Mod
				1.14

EMod Formula From Rating Sheets (No Stabilizing Value)

The EMod Formula has many more steps than the basic one shown in the previous section. So, let us look at the final numbers without using the Stabilizing Value.

E-Mod = (Actual Primary Loss + Actual Rateable Excess Loss) / (Expected Primary Loss + Actual Ratable Excess Loss)

E-Mod = (138,258 + 95,038) / (99,179 + 68,728) = 1,39 Ouch again.

EMod Formula From Rating Sheets – With Stabilizing Value

Looking at the above table with the factor added in , one can see that the EMod dropped by approximately .25 from the values without any stabilization. A 1.14 Mod, while not the best, is better than having to pay 25% more for the same workers comp coverage.

If you pull out your Workers Comp Rating Sheets, you can see how the Stabilizing and Excess Ratable values are calculated for your company. The main reason this article was written was to show you how the Rating Bureaus cut companies some slack on their X-mods.

Besides, I only have one Mr. Rogers calming video to show you.

End Result

Actually, I found an anomaly on my client’s loss runs – which feed into the EMod Rating Sheets loss runs. The anomaly reduced the company’s Mod below 1.0. <<Much less of an ouch with the help of the stabilizing value.

©J&L Risk Management Inc Copyright Notice

XMod Formula Simplified(?) By California’s WCIRB

April 12, 2018 By JL Risk Management Consultants

California’s New XMod Formula Looks Simple – But Is It Really?

A new XMod formula was recently introduced by California’s Workers Compensation Rating Bureau (WCIRB). By the way, why is this important? As I have often mentioned in my articles, what happens in California may be coming to a Workers Compensation policy or claim near you. For instance, take the adoption of the 7219 Class Code by the NCCI – more on that next week.

Below is the new simplified formula. This formula was introduced in an upcoming 2019 Changes Module by the WCIRB.

New, Simplified Formula

The first $250 of every claim is excluded Reporting the cost of minor workplace injuries helps everybody.

I will cover the $250 loss exclusions in an upcoming article.

So let us look at what is missing in the new XMod formula. Expected primary losses are long gone. What happened to this very important part of the XMod or EMod equation? Why is it no longer in place?

The old very simple formula that is being used in most of the states besides California is basically:

Actual Primary Losses + Actual Excess Losses / Expected Primary Losses + Expected Excess Losses

The Expected Primary Loss now in California depends on the size of the company’s payroll. The Expected Primary Loss was eliminated to make it more of a floating number that is not set at any level. Most of the NCCI states set the level at $15,000.

As I have mentioned before on this change, we will have to wait and see how it affects smaller employers. One of my concerns is that when you float the Primary and Expected loss figures and base it on company size the small employers end up purchasing Workers Compensation per unit at a higher cost than a larger company.

However, all the rating bureaus have said for a long time that a larger amount of payroll spreads risks more efficiently. One wonders what further small tweaks the WCIRB will make to the XMod formula calculation.

©J&L Risk Management Inc Copyright Notice

Experience Mod Calculation Shortcut With 10 Ways To Reduce

October 5, 2017 By JL Risk Management Consultants

The Experience Mod Calculation Shortcut – Back To Basics

Lately, Experience Mod calculation questions have come into our offices at a very high rate compared to other subjects. The Experience Mod is also known as

E-Mod, X-Mod, EMR, etc. Many factors exist that can change your Workers Comp premium. The Experience Mod calculation seems to receive the most attention.

Simultaneous Experience Mod Calculation Formulas

Public Domain Graph

The formula can be simplified into:

What happened in our Experience Period / What The Rating Bureau Expects To Happen or even more simply:

Reality / Expectations

One big time caveat exists with the Expectations part of the formula – Expectations come from how other similar companies to yours have performed over the past few years.

If say, you are a construction company and construction companies have become much more safe in the state(s) that you operate and your company does not become safer, then you may have a higher Mod. Why? The Rating Bureaus have recorded much lower claims in the Classification Codes that represent your company operations.

Their expectation of claims (Total Incurred) has lowered.

Insurance Concept Experience Mod calculation Vector

StockUnlimited

A low E-Mod does not guarantee insurance. Market forces sometimes will cause a company with a low X-Mod to not find coverage in the conventional Workers Comp marketplace. Many companies experienced this conundrum over the last 20 years.

How does one avoid being hit with a large E-Mod? Safety always counts. The complete E-mod system is predicated on rewarding safe companies and penalizing the unsafe ones.

I have attended Rating Bureau seminars, webinars, conferences, etc. where the presenters remarked – so that the safe companies are not subsidizing the unsafe ones. The NCCI changed their formula a few years ago to more heavily penalize unsafe companies.

The WCIRB has totally redone their X-Mod formula – actually twice for smaller companies. This formula looks to also penalize unsafe companies.

What to d0? 10 Ways To Possibly Reduce Your Experience Mod

Safety remains the key. We have seen companies cutting or eliminating their safety and risk management staff – rolling the workers comp dice. Higher penalties may now justify safety expenditures.
Make sure you are classified properly. Do the Class Codes represent what you do?
Review your policy, audits, and any other material you receive such as Policy Endorsements.
Reach out for assistance. No company is an island.
StockUnlimited
Start talking to your broker/agent more than just at renewal
Review your loss runs all the time. If you have online access, get to it.
Always make sure you follow the Six Keys To Workers Comp Savings – written in the 1980’s by me.
Search the articles here (box at top right of page) for any questions you may have on Workers Comp.
Understand that Workers Comp takes many years to correct. Safety today = workers comp savings in the future. This is the wrong place for immediate gratification.
Look at your Schedule Rating Factor
Bonus – Join Associations and Safety Groups – we have noticed that companies that join associations and/or safety groups seem to perform better with their Mods – not sure why. #12 may explain this one.
Pay attention – companies that turn their attention to Workers Comp always save $$ in the long run. Weed the garden.

©J&L Risk Management Inc Copyright Notice

Experience Mod Of 1.01 Can Cost Company Millions – Important

July 12, 2017 By JL Risk Management Consultants

Experience Mod Of 1.01 Can Negate Large Private or Government Contracts

An Experience Mod of 1.01 does not necessarily indicate that a company operates unsafely. We have received many questions over the last three to your years on this situation.

Picture Man Ladder of Insurance Experience Mod Posting

Wikimedia Commons – British Library

Over the past 30 years, I have presented and wrote how an X-Mod is like a credit score from hell.

Government and now even private contracts require an employer to have a 1.0 Mod or less. Does an employer with a 1.01 Mod versus one with a .99 E-Mod denote a better level of safety? Many contractors are caught on the outside looking in for having such a Mod.

One has to agree that dealing with an unsafe subcontractor can cost the Risk Manager’s organization dearly. The Ladder of Insurance (c) shows how a contractor can be responsible for employees they never knew that had on staff.

Then again, to eliminate a good subcontractor that has a 1.05 Mod my not be providing the best value to that Risk Manager’s organization.

I had just got off the phone with a very large contracting firm in this very situation when I decided to write this article, What is a contractor to do? This contractor had a Schedule Credit Rating Factor which helped reduce their Workers Comp premium. Then again, the amount of premium saving was paltry compared to the inability to bid on certain contracts.

There exists a large alternate market which includes Self Insurance, PEO’s, Captives, Large Deductibles that may be worth pursuing to possibly remove the employer from the Experience Mod System.

Businesswoman Experience Mod With Document

StockUnlimited

The most effective method would be the re-doubling of safety efforts to reduce the Mod back at or below 1.0. How much safety funding would bring the Mod below 1.0 when one bad year can push it above 1.0? That is the employer’s conundrum.

To the government and large private contract bidders – good luck with your Experience Mod.

2020 Update –

The 1.0 Experience Mod remains a statistic that large companies and governmental RFPs review to decide if a bidder stays in the running for a big project. Do not think if your company is an incumbent bidder that an Experience Mod of 1.01 or greater will not be taken into account.

©J&L Risk Management Inc Copyright Notice

Experience Mod For Next Year – Ruined By Big Claim?

August 5, 2016 By JL Risk Management Consultants

Experience Mod Question From Article Reader

The Experience Mod system- while seemingly complicated and full of penalties – has a built in algorithm that keeps one very serious claim from ruining your insurance budget.

Money And Calculator Experience Mod Budget

StockUnlimited

In fact, your Mod for next year will not be affected whatsoever by the one big claim you just experienced this year. The E-Mod system is a delayed system. You should be budgeting for the big hit to take place the second policy year after the claim occurred – in most cases.

One very important concept is that claims will be around for Years 2, 3 and 4 after the date of the claim. Please note that I am talking in generalities. There are many specific and state-specific rules that could change the Years 2,3, and 4 statement.

Maximum total claim amounts will also help keep your E-Mod or X-Mod lower. Maximum total claim amounts are the maximum Total Incurred amount that a claim can add into the Experience Mod. The maximums are state-specific.

One part of the equation that sometimes catches employers off-guard is that the claims are additive into the Experience Mod. If there happens to be a few smaller claims or if payroll falls, then the one serious claim can have more of an effect. In other words, look at your loss runs to see the whole picture. Focusing on the effect of the one big claim could possibly move the attention away from the claims that have a solid effect on the Mod when added together.

©J&L Risk Management Inc Copyright Notice

Work Comp Wellness Plans – Should Industry Follow Feds?

May 19, 2016 By JL Risk Management Consultants

Work Comp Wellness Plans – Should Employers Receive An Incentive?

Should Work Comp wellness plans mimic the recent Obama Administration action on health wellness plans?

Picture Of Women Exercising Work Comp Wellness Plans Park View

Wikimedia – Port of San Diego

Recently, the Obama Administration had issued a rule that employees can receive up to a 30% incentive of the lowest priced healthcare policy issued by the employer’s health insurer.

Would this work in the Workers Comp market. Are there Work Comp wellness incentives already in place? Could the Workers Comp market afford allowing a 30% reduction in premiums for a well-rounded work comp wellness plan?

Actually, there are three areas where the incentives already exist in the WC marketplace. Those three are:

Experience Modification Factor – If the employer has a wellness plan in place, the area where it would show the most effect would likely be the E-Mod (X-Mod). As noted often in the articles on this blog, the E-Mod would take up to 5 years to fully show the effect of a wellness program.
Wikimedia – www.localfitness.com.au
Schedule Rating Factor – Even if the E-Mod would possibly take 5 years to show a full effect, the Schedule Rating Factor could be applied to a policy at the beginning. This may be a great area for carriers to have a marketing advantage.
Market access – Very often in the WC marketplace, a carrier or group of insurance carriers will decide to not write a market in the state. Our trucking clients could not find coverage other than State Risk pools from 2003 – 2009. Would a carrier that is not writing a certain market change its mind if the employer had a proven wellness program? This area may be more of a projection than reality.

I have attended quite a few conferences over the years where wellness programs were covered or were the main topic. At that time, I had thought, this will never work for WC. Work Comp wellness plans may be an area to consider over the next few years.

©J&L Risk Management Inc Copyright Notice

E-Mods LDFs Are Like Credit Scores From Hell NCPRIMA

September 22, 2015 By JL Risk Management Consultants

E-Mods LDFs Are Like Credit Scores

Are E-Mods LDFs like credit scores from hell? Over the past few months, I have presented this material at various conferences. I thought I would attach the PowerPoint that I used at the NCPrima Conference last week.

E-Mods and LDFs_NCPRIMA_presentation 2015

Man Climbing on Credit Score Number E-Mods LDFs Concept

123RF

I have received a few requests for the PowerPoint slides. Ironically, the projector would not work when I presented the slides. Luckily, I had large-sized printed them on paper as a backup.

The interesting fact is all of the slides are taken from articles that were written in this blog over the last eight years. I had combined them for presentations. Actually, this blog was originally conceived as a way to have material on hand for presentations and to possibly write a book.

Credit scores have been used as an easy comparison to E-Mods and LDFs by me for a few years. The differences between credit scores vs. E-Mods LDFs are just as important.

The presentation slides may not seem to make sense. The links in the preceding paragraph will explain much of the information on the slides.

The main theme of the PowerPoint slides is that credit scores can be much more easily changed than E-Mods. The results of a credit file correction can show results in 30 days. E-Mods have many limitations on how they can be changed once the Total Incurred is reported to the Rating Bureaus.

©J&L Risk Management Inc Copyright Notice

Mod Increases To Over 1.0 – Five Bad Things Can Happen

August 27, 2015 By JL Risk Management Consultants

Bad Developments With Mod Increases To Over 1.0

When a company’s Mod increases to over 1.0, it can rarely have no other effect to a budget other than paying more for WC coverage.

Dollars with Red Arrow Mod Increases Graphic

123RF

Please note that the term Mod also can mean E-Mod (EMod), X-Mod (XMod), EMR, Ex-Mod, Experience Modification Factor, etc.

There are actually more than five concerns with a Mod that crosses the neutral line. A neutral Mod is 1.0.

The five main budget developments – (cash) are:

Certain carriers in certain markets may not underwrite coverage for companies with a greater than 1.0 Mod. In other words, you may have to change carriers to a possibly more expensive choice.
Governmental entities and some private companies will not use subcontractors with a Mod of 1.0 or greater. Some have dropped this to .9 in certain markets. This is a way to lose a large chunk of business very quickly. I have one on my desk with this situation as I write this article.
Mods are trend-based which means your Mod has some factor that will likely be tabbed your Mod for at least the next two years. Rarely does a Mod spike for just one year. The time to act is now when the Mod increases to over 1.0 .
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The obvious budget buster is your company or organization will pay more for your coverage than your safer competitors. The Mod is a direct multiplier. Look at your last policy and premium audit from last year.
Your company may have to move funds away from other areas and increase your safety and risk management program budget to turn the tide. Presenting this budget shift to a Board or C-level managers can be a tough sell.

There are actually more than five. These are the ones that we have seen recently when being called in to assist clients with their Mod.

Feel free to use the search box in the top right hand corner of the blog for more information on Mods.

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How Does NCCI Calculate Our Mod – Reader Question

August 20, 2015 By JL Risk Management Consultants

How Does NCCI Calculate Mods – 33 Steps

How does NCCI calculate our Mod ? This is a blog/newsletter question that we receive almost weekly.

This reader originally performed a Google search to find us. We love the Google or Loogle (Hot Tub Time Machine).

Picture of Hand Holding Calculator with NCCI Calculate Concept

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The NCCI (National Council on Compensation Insurance) is located in Boca Raton Florida.

NCCI is not the only rating bureau. There are many independent state bureaus – the largest being the WCIRB (California). The formulas are quite similar.

The actual formal word is promulgation instead of calculation. The graphic at the top is not the Mod formula.

There are basically 33+ steps to calculating your E-Mod. I think we can actually break it down to a simple formula instead of an E-Mod (X-Mod) calculation that may cause your head to spin.

The E-Mod formula can be thought of as :

E-Mod = Your Company’s Actual Claims Incurred / Similar Company’s Expected Claims Incurred

The NCCI or your respective rating bureau has many more tweaks in promulgating your E-Mod. Almost all insurance (auto, home, life, etc.) is analyzed using this formula. >>>> Actual Results / Expected Results

Woman Hand Doing NCCI Calculate Expenses

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There are many articles on this blog concerning Mods. I will not repeat them here.

Your company’s classification codes sometimes referred to as work comp codes are how your company is compared to another company in the same state(s) your company conducts business in respectively.

The best way to keep the actual results lower (top part of formula) is to have a full safety program or a safety consultant.

Mods have crept back into the insurance conversations recently. A large % of companies were paying attention to the new healthcare regulations while safety and WC were put on the back burner, so to speak.

I hope that I answered the – How Does The NCCI Calculate Our Mod – question with a simple, straightforward answer.

There are hundreds of techniques to lower your Mod – most of them covered in this blog. Search, find, and print whatever will help your company.

If it is not here, or you cannot find it, call or email me.

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Mod Android App – EMC Smart Mod

August 6, 2015 By JL Risk Management Consultants

Mod Android App

A good Mod Android App keeps the calculation simple and straightforward. Smart Mod ™ from EMC (Employers Mutual Casualty) is a one of a kind Experience Mod Android App.

I found no other apps that tried to take on the E-Mod or X-Mod calculations. The app required no logons or passwords to access the calculator.

The following first screen shows the inputs required to calculate a Mod. The second screen shows the results.

If you are an EMC agent, you can actually download all the Mod information directly into the calculation.

What I liked about this App was:

You do not have to be an EMC client or agent to use the app
The app covers all states (NCCI and non-NCCI)
The results screen (see second screen) lets you see what happens if you have better or worse results in 10% increments.
There is an option to see general recommendations from EMC on how to reduce your Mod.

The one limitation to the calculator is that you cannot input your complete specific information from the Mod sheets. However, the app may be providing you a favor. Inputting all the numbers from your Mod sheets into a smart phone could be very tedious. The EMC Mod Android app can still be useful for your general knowledge of Mods.

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E-Mod X-Mod Reduction – #1 Question We Receive

March 26, 2015 By JL Risk Management Consultants

E-Mod X-Mod Reduction Is A Very Popular Question

E-Mod X-Mod reduction is by far the most popular question we receive from phone calls, emails, and in-person at conferences.

Picture of Man Holding up a Question Mark E-Mod X-Mod Reduction Symbol

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How do we reduce our E-Mod today or something along those lines is usually the question. There is no method for E-Mod (X-Mod) reduction that will show results immediately. The system is set up as a trend analysis of sorts.

The look-back or Experience Period is usually your 4th, 3rd, and 2nd policies in the past. There are many exceptions to that general rule.

There are so many articles on this blog concerning E-Mod X-Mod reduction that it would be easier to refer back those articles instead of reiterating them again.

The easiest way to find the articles on your own with a slant more towards your individual type of business or organization is by using the search box on the right side of the page. In fact, you can search the 1625 article blog for other subjects in addition to E-Mods. Feel free to print them for future reference.

One of the best ways for E-Mod (X-Mod) reduction is to have a safety program in place. This is not the one that looks good on paper, but actually a functioning loss prevention program. Keeping your workers out of the Workers Comp system by never having accidents is the best way to reduce your E-Mod.

Check out these prior articles on E-Mod (X-Mod) reduction:

Five Reasons For Sharp E-Mod Increases

When To Start Your Workers Comp Reserve Reduction Program

Experience Mod Reduction Plans – Are They Really Worth It?

A Quick Workers Comp Reserving Refresher

Picture of Thumbs Up Gesture with Business E-Mod X-Mod Reduction Concept

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Your E-Mod can be thought of as the credit score from hell. Your personal credit score can be changed instantaneously by correcting your credit risk. However, your E-Mod may take up to four years to fully reflect your safety efforts.

Patience is a virtue in this area. At least once your safety/loss prevention program shows improvement, the great results can be ongoing even if your company happens to have one accident.

The same methods can be used for self-insured with a twist. Your E-Mod is actually referred to as a LDF (Loss Development Factor). The LDF takes into account a ten years span using an actuarial method to predict the long tail values of a claim. I will cover those next week. Until then, you may use the search box on the right side of the page and search for LDF.

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EMod (XMod) Can I Obtain One Before My Agent Provides It Every Year?

December 9, 2014 By JL Risk Management Consultants

My EMod (XMod) – When Can You Obtain It?

How do I obtain my Emod (Experience Modification Factor0? This question was emailed from a medium-sized company from Kansas.

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We receive this question regarding EMods often from employers that wish to budget for their upcoming Workers Comp policy year. A large number of employers also want to avoid the last-minute E-Mod (X-Mod) surprise.

The earliest an EMod can be promulgated d (calculated) is 6 months before the policy ends in most states. Your loss run actually has the necessary data to calculate the E-Mod. However, there is a very large caveat here.

Selecting the correct levels of the proper variables from the loss runs is beyond critical. The Rating Bureau’s (NCCI, WCIRB) EMod formula is very specific on the data needed to end up with the correct E-Mod. Your company may need a consultant to calculate the E-Mod before it is produced by the rating bureau.

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Your company’s time may be better spent earlier in the year obtaining your loss runs and then reviewing the outstanding reserve values. Your company will usually have six months after your new policy renews to review your loss runs for next years’ E-Mod.

There are numerous articles in this blog concerning loss run review schedules. You should check those out in detail by searching for the word “schedule” in the search box.

This timetable for loss run review may sound a bit confusing. The main thing to remember is to get started on next years’ E-mod as soon as possible. Safety is always the best way to reduce your E-Mod.

As a last resort, your company can always request a copy of your E-Mod (X-Mod from your respective rating bureau. The lion’s share of those will be provided by the NCCI or WCIRB. You may Google those terms to find the proper contact information. If your agent is timely about providing your quotes then you will likely receive the E-Mod not long after it is produced by the rating bureau.

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E-Mod Increases Sharply – Top 5 Reasons May Help Reduce

October 1, 2014 By JL Risk Management Consultants

Sharp E-Mod Increases – Five Reasons

We have had many inquiries on employers’ E-Mod increases (X-Mod). Some have increased very significantly in just one year.

Graphic of Number Five E-Mod Increases Reasons

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Five reasons for the sharp E-Mod increases are:

The E-Mod may have grown gradually without notice. Checking back to see the E-Mods (X-Mods) over the prior five to seven years may show a pattern starting to develop that went unnoticed as there was no one big jump.
Your company’s safety program is just not working properly. This would be the reason for the largest number of sharp E-Mod increases. The X-Mod system is specially designed to require larger premium payments from unsafe employers. A large number of injuries in even one year can easily penalize an employer for being unsafe. We have seen many employers eliminate or severely cut back their safety programs. The old adage – “Pay it now or pay it later” is very true.
Your company does not review your loss runs. Online access to your claims can be golden in monitoring your current claims situation. Many posts have been published in this blog regarding reviewing loss runs and online claims access. The loss runs can be seen as a map to find your way to what is occurring in your WC claims.
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Not following the Six Keys To Workers Comp Savings. Use the search box in the upper right corner of the blog for the Six Keys. It is worth your time. I wrote the first four over 20 years ago. They have not changed since my initial article in the ’80s.
Workers Comp is not the main priority – even in the insurance budgeting. Over the past three years, the new health insurance regulations have become a higher priority until a massive Workers Comp audit bill is received from the carrier. Once a large increase in an X-Mod or premiums is in place, expert advice is usually the best method to reduce your WC budget.

This list is a small percentage of the reasons for a larger premium bill or X-Mod (E-Mod) increase. Each WC situation has some unique aspects. This list is the most common reasons that we see overall.

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Discounted Experience Mod – West Virginia Blog Readers Question

July 30, 2014 By JL Risk Management Consultants

Discounted Experience Mod Likely A Rating Bureau Adjustment

We received this email over the weekend concerning a discounted experience mod. The West Virginia company found the CutCompCosts blog on Google.

Cart With Discounted Experience Mod Vector Graphic

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Our agent informed us that our E-Mod (Experience Modification Factor) for next year was going to be 1.29. When we received our policy quote the E-Mod was 1.03. Can the new E-Mod actually be correct? Did we receive a discounted Experience Mod for some reason? The question was paraphrased for readability as it was much longer. The answers are::

Something may have occurred between the time that your agent informed your company of the 1.29 E-Mod and the policy renewal. This rarely happens. Your E-Mod was tallied six months before your policy renewal date.
Your agent and new carrier cannot arbitrarily discount your Mod at will. I have never seen a premium auditor discount an E-Mod at the final premium audit.
NCCI – the rating bureau for WV-is the organization responsible for your E-Mod.
You may inquire with NCCI to see what your (and this is important) Final E-Mod for your policy was calculated for the corresponding year.
T
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he carrier’s premium auditor would adjust the E-Mod back to 1.29 at the final premium audit – usually 30 days after policy expiration. This increase would cause your final premium bill to be much larger than expected with the lower E-Mod.
Carriers and in turn, agents sometimes make inadvertent mistakes. It is advisable that you check with your agent and NCCI.

It is advisable for employers to always review their policies front to back. This WV employer likely saved itself a large premium bill by reading their WC policy and asking questions. Always read your old expiring policy when looking over your new policy to see if there have been any major changes. Surprises equal $$.

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Cutting Workers Comp Costs Adds 6th Key – Adoption By Management

June 25, 2014 By JL Risk Management Consultants

Cutting Workers Comp Costs Has New Key Added For Clarity

The subject of cutting workers comp costs added an obvious 6th addition to the list. In 1989, I originally wrote and presented on what I thought were the Three Keys to Workers Compensation Savings. I wrote the three from a claims standpoint.

Clipart of Cutting Workers Comp Costs add 6th key

Those three were:

ASAP First Reports of Injury
Return to Work Program
Physician Network

Subsequently, I added in Employee Treatment as a Key. The article from yesterday contains more info on why I subsequently added in this consideration.

Recently, I added in a fifth Key to Cutting WC- Understand your Premium Audit and E-Mod. If you are a self insured – Understand Your Loss Development Factor (LDF).

The Affordable Health Care Act has actually done more than move the subject of Workers Comp to the back burner. It has caused employers to take it off the stove for now. Workers Compensation is still a budget-buster that may be receiving less recognition as at least a partially controllable budget item.

The new addition to the list (Sixth) is Adoption of the First Five in the list by Management. With health insurance becoming more of a concern, Safety and Risk Management departments have been reduced or even eliminated in some cases.

The employer E-Mods and Self -Insured payouts will usually not show the full effect of the Risk/Safety department reduction or elimination for 3 -5 years.

Euro Money Cutting Workers Comp Costs using scisor

Wikimedia Commons – Nikowsk

If Senior Management or the Company Owners in smaller companies will not adopt any of the first five Keys in the list, the likelihood of not paying more WC premium or self-insured payouts is almost a certainty.

I have performed statistical tests that showed the first three in the list not being instituted will cause a claim to increase by 400% per item or 1,200% if none of the first three are accomplished.

A recent study by WCRI (see yesterday’s article) somewhat quantified #4 on the list – Employee Treatment. WCRI quantified Employee Treatment as being a major concern in WC costs..

Understanding Your E-Mod, LDF, Premium Audits, or Self-Insured Payouts has been discussed very often in this blog. I will not repeat the information again here.

Female Doctor Cutting Workers Comp Costs Using Laptop With Files In Table

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However, if management does not adopt any of the listed cost savings procedures, identifying the areas of concerns and implementing changes “on paper” is just that – in a book that sets on someone’s shelf or as a computer file that is in the My Documents folder never to be seen again.

Now may be the time to get the book off the shelf and dust it off or dig out the computer file and see what could possibly be implemented without spending any extra cash as the plan may be sitting right in front of you.

That is why I wrote in #6 this week – to remind companies that dusting off the old WC procedures manual may be a great cost- saving move. At least putting WC “back on the stove” will likely cause the claims and/or premium payouts to decrease in a time when every $ counts.

The addition of #6 now makes the List of Cutting Workers Comp Costs Keys:

ASAP First Reports
Doctor Network
Return to Work program
Employee Treatment
Understanding Your E-Mod, Premium Audit, and LDF
Adoption of #1 – #5 by Management or Ownership

©J&L Risk Management Inc Copyright Notice

California’s Rating Bureau (WCIRB) Great E-Mod X-Mod Explanation

January 15, 2014 By JL Risk Management Consultants

California’s Rating Bureau (WCIRB)

The WCRIB – California’s Workers Compensation Rating Bureau (similar to NCCI) has written quite a few great plain-language documents on explaining how X-Mods (E-Mods, EMR’s, Mods,etc.) affect employers. One of those can be found by clicking here.

Their X-Mod formula is slightly different from most of the other rating bureaus including NCCI.

The Experience Rating Formula Rating Bureau Emblem from web

The bottom line is that Mods of any type are calculated with the formula:

E-Mod = Actual Losses / Expected Losses

One of the areas that differentiate the CA WC system from most other states is the split points. The NCCI had recently changed the split points. A quick definition is that any loss values under the split points are much more costly than the amount after the split point.

In CA, the split point is 7,000 which is low compared to the recent increased NCCI split points.

According to the WCIRB –

“Actual losses are segregated into actual primary losses and actual excess losses. The first $7,000 of losses for a claim are considered primary losses. Any remaining amount above $7,000 is considered excess losses. Once segregated, the experience rating formula places additional weight on the primary portion. This additional weighting of primary losses places more weight on claim frequency than on severity and limits somewhat the impact of claim severity in the experience rating calculation.”

Picture Businessman Giving Presentation Rating Bureau Explanation

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As with all Mod calculations from any rating bureau, the emphasis is on penalizing employers that have many accidents while not penalizing a safe employer that had one or two very serious accidents.

There was one major change on how small employers are affected by losses. CA no longer provides a small employer credit. See that article here. If your company has less than $38,000 in Total Incurred your company needs to prepare for possibly a higher X-Mod.

Senate Bill 863 may have some effect on your X-Mod. However, it will not affect how the Mod is calculated.

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WCIRB ‘s New Mod Formula Hefty Effects Small California Employers

August 14, 2013 By JL Risk Management Consultants

WCIRB ‘s New Mod Formula – Small Employers Must Enact Safety Programs Now

WCRIB’s new mod formula will heavy affect small employers with a less than stellar safety record.

Last Friday, I briefly covered California’s WCIRB and the change in the X-Mod Calculation effective 1/1/2013. I thought I would cover the formula to show smaller employers in CA that the new X-Mods will no longer have a smaller employer discount.

Hand Holding Calculator With Mod Formula Icon

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This may be getting into the numbers-geek area. Hang in there and read it through once or twice. You will see that small employers need to invoke or improve their safety program along with monitoring their loss runs very heavily this year and forward.

The WCIRB, in my opinion, found an anomaly that, instead of leveling the playing field between larger and smaller employers, actually gave too much of an advantage to smaller employers. One could say the safer smaller employers and all larger employers were subsidizing the smaller unsafe employers.

The old formula for calculating X-Mods was:

[(Ap x Cp) + (Ep x (1 – Cp))] + [(Ae x Ce) + (Ee x (1 –Ce))]
Modification = ——————————————————————————
E
Ap = Actual Primary Losses
Cp = Credibility Primary Value
Ep = Expected Primary Losses
Ae = Actual Excess Losses
Ce = Credibility Excess Value
Ee = Expected Excess Losses
E = Expected Losses

The Primary Loss is from $0 to $7,000 Total Incurred
The Excess Loss is any part of the loss greater than $7,000 Total Incurre

Actually the new X-Mod formula is no different. One has to look further into Cp side of the equation. The Cp is bolded in the above equation.

This is the beginning of the new Credibility Table – Effective 1/13/2013

Expected Losses Credibility Primary Credibility Excess

Below — 14,722 1.00 0.00
14,723 — 16,505 1.00 0.01
16,506 — 18,433 1.00 0.02
18,434 — 20,515 1.00 0.03
20,516 — 22,760 1.00 0.04

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This is the beginning of the old Credibility Table – Effective before 1/13/2013

Expected Losses Credibility Primary Credibility Excess

Below — 6,456 0.38 0.00
6,457 — 6,733 0.39 0.00
6,734 — 7,019 0.40 0.00
7,020 — 7,316 0.41 0.00
……
38,438 — 40,147 1.00 0.08

What does this all mean???

The WCIRB has eliminated giving credibility to and lessening the impact of smaller losses. The X-Mod formula will now be:

Ap + (Ae x Ce) + (Ee x (1 –Ce))
Modification = —————————————————————————
E

There was some type of discount up to 40,000 in primary losses. That discount is no longer in effect. The bottom line is there is no longer a discount for smaller unsafe employers. The larger similar employers (more payroll) will have higher Expected Losses – not so for smaller ones.

Regardless of whether or not this may seem as fair to smaller employers in CA, you must adjust your safety measures and loss run reviews ASAP or you may find that your Mod has jumped appreciably in one year.

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Claim Severity vs. Frequency Effect – One Claim Can Ruin Your Mod

July 30, 2013 By JL Risk Management Consultants

Claim Severity – Where One Claim Can Ruin Your Mod

The Claim Severity vs. Frequency Effect can result from one claim. One severe claim cannot hurt your Mod as bad as a number of smaller claims. This is one of the misnomers that exists today in Worker Compensation insurance rating system.

Diagram of One Claim Severity vs. Frequency

fhwa.dot.gov

The frequency statement is partially true. Late last month, our company consulted with an employer who previously had a .87 Mod.

The employer had incurred a very severe accident that was going to show up in their Mod at renewal. The employer was not a micro-employer. According to the size segments used by the Feds, they were still considered a small employer.

Using the prior data, we were able to forecast the Mod of the one claim. The Mod was going to jump from .87 to over 1.50 in one year. I thought, hold on a minute, everyone has always been told that one bad claim will not wreck a company’s Mod.

One thing that helped the employer is that almost all states have limited losses. This is a limit that kicks in when Total Incurred (Paid + Future) reaches a certain level. In this case the limit was approximately $220,000. The limited loss was used when calculating the 1.50+ Mod.

I decided (on my own time) to re-calculate the Mod using four claims of 55,000 which would be the same value as the limited loss. The Mod was recalculated with the four claims and the Mod ended up at 1.79.

The statement that one bad claim cannot harm your Mod is not always true. One bad claim can harm your Mod. However, the other statement that is often mentioned held true. Frequency does affect the Mod more than severity. In the real-world example, the Mod was higher by .29.

Business People Claim Severity In Conference Room

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The size of the difference between the severity and frequency has other factors that should be mentioned such as:

Employer size
Payroll amount
Previous Mod
Classification Codes
Number and severity of prior claims
Insurance carrier Loss Cost Multiplier

The takeaway from this article is that a safety program is very important to even avoid one bad accident or a series of accidents. This will make your next renewal a less painful process.

©J&L Risk Management Inc Copyright Notice

Inverse Relationship Between Mods and Class Codes

July 9, 2013 By JL Risk Management Consultants

Inverse Relationship

One of the areas where we so much confusion on E-Mods and X-Mods is their inverse relationship with Class Codes. If an employer is not careful with their audit disputes the may end up paying substantially more than if everything was just left alone.

Wikimedia commons – Dsivaprakash

The reasons are very straightforward. If your Mod is 1.0 and you have higher risk class codes, this means that when compared to similar higher risk companies, your company has the same amount of claims.

However, when you are re-classified into less risky class codes, your E-Mod may increase. The reason is your company will now be compared to less risky companies. The very basic Mod formula is

Mod = Actual Losses
Expected Losses

For example, with your old riskier class code, let us say your company had $48,000 in losses. Your expected losses were also $48,000 for your company’s risk level.

Mod = Actual Losses = $48,000 = 1.0
Expected Losses $48,000

Now, if your company is moved into a less risky classification code, the insurance carriers would expect that you would have a lower expected loss amount.

Woman Inverse Relationship Having Problem Solving

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Mod = Actual Losses = $48,000 = 1.2
Expected Losses $40,000

The bottom line is that if you wish to DIY your Mod dispute, you may end up paying more than before the dispute. Usually, the higher your Mod was to begin with – 1.25 and up, it pays to be very careful before asking your carrier and Rating Bureau to change the codes.

This is not a plug. You may need an expert opinion before proceeding with a class code dispute. In the previous example, recalculating the Mod after the class code changes may be a critical part of the pre-dispute process.

The example is not meant to discourage Mod disputes as usually the offset of the difference in class codes makes up for the Mod readjustment.

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E-Mods X-Mods Government Cracks Down on Higher Risk Companies

June 27, 2013 By JL Risk Management Consultants

E-Mods X-Mods of 1.0 Needed To Bid On Government Contracts

E-Mods X-Mods risk concerns have caused many governmental units to now require a Mod at a certain level as a minimum requirement to do business with them. One of the main calls and emails that we have received over the last two years is a company very worried that their Mod will increase over 1.0.

Their concern is very legitimate as almost all government contracts now require an Emod or Xmod of 1.0 or less with no exceptions.

graphic of high risk E-Mods X-Mods Government Cracks Down

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The Emod or Xmod above a 1.0 can be a heavy deterrent in bidding on and renewing governmental contracts. A Mod above 1.0 is called a debit mod as your company is going to pay extra for Workers Comp coverage. The opposite is true for a credit Mod that is 1.0 or below. Your company is going to receive a credit for your safety record.

This blog and a large % of the articles are dedicated to reducing your Mod. Self insureds are not out of the system. We have been contacted by many different government agencies to perform a Loss Developmental Factor (LDF) analysis on self insureds during an RFP process.

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There are many ways to reduce or contain your Workers Comp Mod. The easiest is to immediately initiate or increase your safety program efforts. The Mods are your company’s safety score much like a credit score.

Mods and credit scores are very similar in that even though there may be a great explanation for why your company has a higher Mod, the cutoff is 1.0. This is similar to applying for a home mortgage refinance and the bank saying 720 or lower will just not receive approval.

The next step in lowering your E-Mod or X-Mod is knowing where your Mod stands with your rating bureau (NCCI, WCIRB, and others). The rating bureaus are more than happy to send you a copy or you can ask for one from your agent.

Mods are not calculated on your renewal date. Waiting to see what your Mod is at renewal is wasting your time.

Your Unit Stat date is the most important date for your Mod. Monitoring your loss runs is also a great technique in lowering your Mod.

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Late Reported Claims Info = Increased Mod and Premium

June 19, 2013 By JL Risk Management Consultants

Late Reported Claims Info by Carrier Can Cause E-Mod Increase

Increased Mod and Premium were due to Late Reported Claims Info from insurance carrier employer.

We received this emailed in question over the weekend. The business owner was not very happy about receiving a policy amendment and bill during the policy.

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My agent just informed us that we are receiving an increased bill due to a policy adjustment as one of the carriers on our state rating bureau (NCCI in this case) was very late in reporting our claims information to the rating bureau. Is this allowed? Do we owe it?

The answer without going into policy specifics was actually yes. The actual date the Mod E-Mod or X-mod) was promulgated six months before the policy ended will apply to the next policy period. This is called the Unit Stat date.

However, the insurance carriers and state Workers Comp departments are allowed quite a bit of slack on these dates. The insurance carrier can report the claims information up to nine months late or three months into your next policy with usually no retribution of any kind.

I always think that the insurance carrier should be fined for running so late. There are some instances such as carrier insolvency; employer not allowing audit, and others where the carrier is not actually 100% at fault.

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Some carriers are habitually late. We have a large multi-state client that has experienced 44 rating changes due to carrier late reporting and certain states’ Workers Compensation departments both filing late with the rating bureaus.

If, which is not the case in this instance, your Mod was adjusted after three months into the policy would be a cause for further investigation. There is a slightly complicated formula on late reported Mods that needs to be used in these instances.

Also, if your company receives a Mod reduction, there will be a credit to the policy that will very likely be settled up at premium audit time.

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Extremely High E-Mod Question And Ten Ways to Fix

April 18, 2013 By JL Risk Management Consultants

Fixes For Extremely High E-Mod

Fixes for an Extremely High E-Mod are available if a company is patient. I received this question from a blog reader last week. Our E-Mod has been running over 1.4 since our company has been in existence. It is now in excess of 1.7. We are in our state’s assigned risk pool. The rates seem extremely high. What strategies would you suggest to decrease the Mod very quickly?

Graphic Of Extremely High E-Mod Bar Graph

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One of the quickest ways to reduce your E-Mod is by instituting or improving your safety programs. The claim that never happens will always be the best way to lower your E-Mod. With an E-Mod of 1.7, your company likely had repetitive injuries and not just a few high-dollar injuries.

As you are in a NCCI rated state, your company also likely experienced an E-Mod increase due to the E-Mod calculation changes.

The other techniques to reduce your E-Mod would be:

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Working with your carrier more closely – especially your claims adjuster. The adjuster that sets the reserves usually knows whether your company is using some of the following techniques. This can make a difference in your reserves.
First Reports of Injury must be immediately filed with the carrier
You must have a medical network 24/7/365 available for treatment. Many industrial-minded clinics operate in your area.
You must have – and it looks like your company does not – a return to work program. Assessing your company’s limited duty jobs and having those on file with the aforementioned medical network will reduce your Mod.
The way the employee is treated by your HR staff is important. The injured employee is still your employee. Treating them as such will help in all aspects of the WC claims.
Get a copy of your loss run and analyze it very heavily. The loss runs are basically a map of how your company came to have a higher Mod. Do all of the figures look correct on your loss run?
Online access to loss runs is priceless as you do not have to wait weeks before receiving one which is then dated by the time your receive the paper loss run.
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If your company is large enough, a plant nurse is one of the best ways to handle the smaller claims more efficiently and to cut the costs of larger claims. In case of a very serious accident, the plant nurse can be a literal life-saver. Almost all companies that have plant nurses have been very happy with their claims improvement.
Alternative Workers Comp coverage may also be a solution. PEO’s, captives, self-insured groups are all possibilities The one caveat here is choosing the CORRECT alternative for your situation and the right company. Alternative WC coverage can be full of some unscrupulous companies.

This list of quick-fixes is not actually going to be fully seen until three or four years in the future. Workers Comp is a lagging-time system. A bad claims year or a set of great improvements may not show fully in your E-Mod for quite some time. Vigilance is also a key characteristic to companies that improve an extremely high E-Mod.

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Basic Mod Formula Calculation Easier To Follow Than Rating Bureau

April 2, 2013 By JL Risk Management Consultants

Most Basic Mod Formula

The most Basic Mod formula how is it calculated?

We receive a large number of calls and emailed questions on how Mods (E-Mods or X-Mods) are promulgated by NCCI, WCIRB, or State Rating Bureau.

One of the most common scenarios is when an employer’s Mod increases over 1.0. A very large number of contractors now require a 1.0 Mod or less for their subcontracting companies. Mods at the 1.0 level are now more difficult to attain due to the recent NCCI changes on Mod calculations. A more accurate statement is that an employer with a Mod of 1.2 or above will find increasing difficulty in lowering their Mod back to 1.0. I had hoped the contractors would increase the acceptable subcontractor Mod to 1.1 due to the changes in the E-Mod calculations. This has not been the case whatsoever. One contractor had told me that “an unsafe company is still an unsafe company.”

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The basic inputs into the Mod are:

Payroll
Classification Codes
Claims Total Incurred (Paid + Reserves)

The Mod formula measures:

Actual Losses / Expected Losses

The Expected Losses originate from the first two bullet points. In other words, what claims are expected for the level of the payroll of each classification code? The Actual Loss figure is the Total Incurred for a given year.

As the level of payroll increases, the level of Expected Losses will increase overall. Increased losses are more likely with a higher number of employees or work hours. If the Actual Losses (Claims) do not increase, then the Mod will decrease in most cases.

There is actually a large amount of “number voodoo” required to calculate the Actual and Expected Losses.

If the Rating Bureau Mod formula seems confusing, just remember the basic Mod formula.

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Reinsurance/Excess Insurance Market Hardens

February 11, 2013 By JL Risk Management Consultants

Reinsurance Market No Longer Soft

The reinsurance/excess Insurance Market has started to change from a commodity marketplace. The excess insurance market is usually the bellwether for the rest of the marketplaces.

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Reinsurance/Excess Insurance is basically defined as a risk management technique. The employer will purchase this type of insurance to cover claims that exceed a certain payout per claim or an overall claims total known as an aggregate.

According to a recent article in Business Insurance, the employers may not be able to choose their Third Party Administrator (TPA) and then just pursue the lowest priced reinsurance. Reinsurers are starting to use more predictive analysis when underwriting a risk.

Hand Pointing Towards Insurance Market Icons

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Insurance companies are not offering the same standalone product for reinsurance as in the past. The reinsurance/excess insurance market is now operating with ever-thin margins due to the return on investment the carriers are receiving for premium invested in stable investments such as money market funds.

The striking quote from article is that employers should expect a 10% increase in their excess insurance premiums. The other change is that re insurers are going to require employers to endure the same process as other insurance coverages.

The 10% increase is also for the employers with normal loss histories. Employers may see more severe increases with higher Mods or Loss Development Factors (LDF’s). The re insurers will likely analyze the same variables as normal Workers Comp carriers. One area that will receive more attention is whether or not an employer has a full safety and loss prevention program in place.

The one component that keeps the reinsurance market from actually being deemed hard is the availability of reinsurance. There are many carriers still offering reinsurance.

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Experience Modification Factor (E-Mod/X-Mod) Question

February 7, 2013 By JL Risk Management Consultants

The Experience Modification Factor Basics

A great Experience Modification Factor Factor email came in last week.. Our E-Mod has changed a large number of times over the last year. Why does our E-Mod keep changing? How many times can an E-Mod change in a policy year?

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I actually paraphrased the above question from a company that found us through a Google search. The employer operates in 11 states. This makes them subject to NCCI’s Interstate Mod calculations.

Without knowing more on the particular employer situation, I would say the following are some of the reasons for an E-Mod to be changed by NCCI:

Your annual Unit Stat Date – the drop dead date where the Total Incurred per claim is reported to NCCI or other rating bureaus. This is the original E-Mod publication date in most cases.
Current or prior carrier data change – if the carrier(s) reported correction information to the NCCI, then a new E-Mod may be published. The E-Mod may be unaffected from the original Unit Stat date reporting
Late reporting by a carrier – the instances where you prior or current WC insurance carriers report late data does happen. This will seldom change your E-mod. There have been cases where this has made significant changes to the E-Mod.
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State approval or changes to NCCI recommended rates – this can cause multiple changes to an E-Mod. We have seen instances of where there were more than 9 changes to a client’s E-Mod due to state changes reported to NCCI.
Premium Audit – some findings at your company’s Workers Comp premium audit may cause changes to your E-Mod such as more or less payroll, etc.

There are many other instances of what would result in an E-Mod change. NCCI or your state’s rating bureau may email or mail you each changes to your E-Mod even when your E-mod number does not change.

If for some reason, you are not receiving your E-Mod changes by NCCI or your state’s rating bureau, a phone call is heavily recommended. We have seen instances where the employer’s address is not a mailing address, but just the physical address. The other possible scenario is an outdated or improper email address.

Even though I only mentioned NCCI and E-Mods, the WCIRB is the rating bureau for Calfornia. They produce X-mods.

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California Employer Question On Experience Modification Factor (XMod)

January 23, 2013 By JL Risk Management Consultants

California Employer Question

A California employer emailed in this question last weekend. “We are a medium-sized employer (dry cleaner) in central California. Our Experience Modification Factor increased significantly over the last few years. The increase seems to have resulted in our Workers Comp premiums rising significantly. What is in included in the Experience Mod calculation? Is this the same as the Mod that is produced by NCCI?”

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The Experience Modification Factor in California is called an Xmod or X-Mod. It has the same basic function as NCCI’s Emod. E-Mods and XMods individualize the riskiness of an employer’s work environment as compared to other employers with the same job types or functions.

The XMod is produced by California’s Workers Compensation Independent Rating Bureau (WCIRB) and only applies to employers in CA. The calculation of the XMod differs from NCCI’s E-mod calculations.

NCCI has recently significantly changed the way E-mods are calculated. The WCIRB did not follow this change with any formula modifications. The WCIRB defines an X-Mod as:

Dollar symbol California Employer shadow reflection

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a comparison of the loss or claims history of one company to all other companies in the same industry that are similar in size. Generally, an experience modification of less than 100% reflects better-than-average experience, while an experience modification of more than 100% reflects worse-than-average experience. Accordingly, an experience modification that is greater than 100% usually increases the cost of your workers’ compensation insurance premiums, while an experience modification that is less than 100% usually decreases the cost of your workers’ compensation insurance premiums.

The XMod is calculated by comparing the actual losses to the expected losses. Actual losses are the claims, both medical and indemnity, that an insurance company must pay as a result of a work-related injury. Expected losses represent a business’s share of the annualized cost of projected losses for the industry in which it operates. In other words, given its classifications and payroll, expected losses represent the statistical average losses that a business of a similar size 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 sustain.

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If you were to read the NCCI’s definition of an E-Mod, you would see almost the same definition. The one main area of difference is what is called the Primary Loss. In the NCCI states, before 2013, the primary part of the loss was set at $5,000. The WCIRB has set their primary loss at $7,000.

The primary portion of the loss is more heavily weighted into the NCCI’s or WCIRB’s formula. In essence, your company will pay premium at a much higher rate for the first $7,000 part of a claim than the part of the claim that exceeds $7,000 known as the Excess Loss.

If you want to see why it costs more, you should check Primary vs. Excess Loss. The X-Mod formula is not included in this post due to readability and fit on the page.

There are other factors such as class code rates and payroll that may also have compounded your premium increase.

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Experience Mod Reduction Plans – Are They Really Worth It?

January 16, 2013 By JL Risk Management Consultants

Experience Mod Reduction Plans Can Be Preservation Plans

The Experience Mod Reduction Plans – are they really worth it ? Yesterday, I was presented with two different employers’ loss runs and Experience Modification Factor Worksheets (Mod Sheets). One employer had a good E-Mod of .86. The other employer had an EMod of 1.3.

Black board as Experience Mod Reduction Plans

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The Mod reduction plans for each of the two employers would not vary that much. The function of one mod reduction program was to reduce the Mod below 1.0 so the employer could bid on projects. Many contractors now require a sub-contracting company to have a Mod of less than 1.0.

Even though the second company had a mod of .86, I would also recommend not only an Emod reduction program, but an Emod preservation program. What would be involved with an Emod preservation program?

The answer to the question from the post title is under almost all circumstances, Mod reduction or preservation programs will almost always save an employer $. The Mod preservation program looks to keep the employer’s low mod in place by performing almost the same tasks as a Mod reduction program.

The Emod preservation program’s importance can be justified with almost the same justification when keeping a grade in school from falling from an A to a B. The same amount of effort has to be expended to preserve an A as it takes for a B student to raise their grade to an A.

If your company has an EMod of .86, then you are still going to use a very large amount of effort to keep the Mod from increasing to .9 and then subsequently to a 1.0.

Clients Experience Mod Reduction Plans with similar E-mod

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We recently had two trucking clients with similar Mods have their Emod increase from .89 to almost 1.1 within two years. Both clients had relaxed their:

Safety programs
Loss run reviews
EMod reviews.
Claim reviews

The Emod jump from .89 to 1.1 is very significant. That means at a minimum, each company’s workers comp insurance had increased a ball park estimate of 20%.

I have also found a much higher degree of effort required when assisting clients in preserving a lower Mod than decreasing a higher Mod. The higher Mods will usually have “red flag” areas to identify and work on very quickly.

This is not so with a lower Emod clients as there may be no “red flags” for justifying a rapidly increasing Mod. Our low Mod clients have to use their crystal balls to proactively handle their claims as there are no obvious areas to examine for a reduction.

The bottom line is that if your company has a low Emod, there is much more room for it to become worse (higher) than an employer with a higher Emod.

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E-Mods and X-Mods Affected By Lack of Technology

November 29, 2012 By JL Risk Management Consultants

Lack Of Technology – E-Mods and X-Mods

All E-Mods and X-Mods are affected directly by technology. In my last post, one of the statistics that jumped off the page caused me to write this blog separately as there is a study that finally relates the lack of technology by Workers Comp carriers and higher Emods (Xmods in CA).

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The exact quote from the article is:

While 92% of the claims executives we surveyed said they could reduce loss costs by increasing consistency in claims handling, most of them are not in a position to do so because their core claims systems are either too old or not adapted

I found this quote startling on its own merits. The other area of concern is the high level of agreement at 92%. I was never able to correlate outdated Workers Comp claims systems with the likelihood that loss costs (therefore Mods). After reviewing a large number of claims on different systems, I can understand why this number was so high.

Over the past few years, I have posted very often on why having online access to all claims data is so important. If your company or organization does not have online access to your data, it may be a prime time to investigate if you have access privileges. The responsibility to have accurate claims data often rests with the employer.

Your E-Mods and X-Mods are tied directly to the claims data. The claims data (Total Incurred) is what is reported to the NCCI, WCIRB, or State Rating Bureau to calculate your Mod. Consistency is claims handling and the resulting data is becoming ever important as employers look to cut workers comp costs in this tough economy.

Close up of hand typing e-mods and x-mods computer keyboard

Wikimedia Commons – MoD/MOD

Investment company clients along with our employer clients always ask me the #1 concern I have for the Workers Comp market in the future. One of my main concerns that I always address is the lag time for Workers Comp claim system updates. How can an adjuster that is accessing five different claims systems actually be that consistent with claims handling?

As I pointed out in the last post, there are some adjusters that have to access eight claims systems to process a claim. That is an enormous burden. The adjusters’ time could be better used elsewhere – plain and simple.

Why am I so concerned about this one area? I used to be a systems engineer for two different computer companies. There are better claims systems out there even if the migration from one system to another is seen as a large barrier.

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Auditing Workers Comp EMods or XMods – Worth Your Time?

October 15, 2012 By JL Risk Management Consultants

Auditing Workers Comp EMods or XMods – Tricky Stuff

By Auditing Workers Comp EMods or XMods, you may find premium savings or you could blow up your program.

Workers Comp E-Mods (X-Mods in CA) can save your company a large amount of premiums if kept in check.

Is trying to make sure that your E-Mod / X-Mod worth your time? I had listed a few pointers before you undertake this arduous task:

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Is your E-Mod (X-Mod) high enough to warrant any type of review? If your Mod is below .8, you may find spending your time elsewhere in your Workers Comp program as being a more efficient use of your time. I am not saying that a .8 E-Mod is the best possible. You may find the next point to be the best place for your efforts.
Does your company have a viable safety program in place? If not, you may not being using your time wisely. A full-fledged safety program should be priority #1. If your company’s safety record is not that great, creating or updating your safety manual may be the best place to start.
Realize the Mod system is a delayed system. Your current efforts will only show up in subsequent years. Patience is a required virtue with the Experience Mod system. Your saving efforts will show up proportionately, not all in the first year.
Do you have updated loss runs? Are they older than two weeks? Do you have the precious and very valuable real-time online access to your reserves? If not, your E-Mod review may be out date as soon as you finish it.
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Do you have access to your last four years rating bureau reports? If not, you may not be able to know whether or not the right loss run figures went on the right rating bureau report.
Have you read over at least the basic rules for X-Mod calculations? I have been doing them for many years for clients. They make my head spin sometimes.
Do you have a software package that can help you calculate the Mods? Be very careful at this point as not all software packages are that easy to use. The old GIGO model may show up here (Garbage In = Garbage Out)
Each state may have its own peculiarities on some of the inputs to the Mod system.
Do you have a copy of all your policies and audits from the last four years?

If you are in the midst of analyzing your E-Mod (X-mod) and you have any questions, please feel free to contact us.

If you have already started an analysis or have decided to do one after reading this post, you are already saving your company Workers Comp $. You are paying attention to your WC, which is a great first step.

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Who Is The WCIRB And What Do They Regulate?

October 10, 2012 By JL Risk Management Consultants

Who Is The WCIRB ?

What do they regulate and who is the WCIRB ? I received this question on the WCIRB last night from a California employer that had grown large enough to receive an X-Mod. Congratulations on your company’s growth in a tough economy. Sometimes, it is best to get back to the basics when analyzing Workers Compensation.

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The WCIRB is the acronym for the Workers Compensation Insurance Rating Bureau of California. The organization is very similar to NCCI. They are the data gatherer for info that feeds into each California employer’s Experience Modification Factor (XMod).

Some companies are too small to be rated in California. The minimum pure premium for an X-Mod is presently $25,225. The pure premium figure is not the premiums your company has paid.

The bureau holds conferences/workshops usually four or more times a year. I have found them to be very educational. The staff has always treated me very professionally and would help me as much as possible in any given situation.

One very important fact is the WCIRB only sets advisory rates. They are not directly responsible for how much you are charged in Workers Comp premiums. Your insurance carrier will usually deviate from their recommended rates by filing a Loss Cost Multiplier.

This is from the WCIRB’s About Us web page.

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The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) is a California unincorporated, private, nonprofit association comprised of all companies licensed to transact workers’ compensation insurance in California, and has over 400 member companies. No state money is used to fund its operations. The operations of the WCIRB are funded primarily by membership fees and assessments.

To accurately measure the cost of providing workers’ compensation benefits, the rating agency performs a number of functions, including collection of premium and loss data on every workers’ compensation insurance policy, examination of policy documents, inspections of insured businesses, and test audits of insurer payroll audits and claims classification.

The WCIRB employs approximately 200 people and maintains two offices. The home office is located in San Francisco, and a small Southern California field office is located in Cerritos.

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Safety and EMods – Highlights From My Presentation From Today

October 10, 2012 By JL Risk Management Consultants

Presentation Highlights – Safety and EMods Are Very Related

How Safety and EMods intermingle was the basis for most of the highlights from my presentation. The NC Mid State Safety Council was kind enough to ask me to do a presentation on how safety programs impact an employer’s bottom line from a Workers Comp standpoint. I am the Treasurer for the organization.

The highlights from my presentation were (you may want to print this one):

Safety Departments can be easily scored by their E-Mods. It is the same as a personal credit score but much harder to improve quickly.
Self Insureds do have an EMod, better known as an LDF (Loss Development Factor). If your company is self insured and does not have an LDF, you are operating a blind WC budget
Due to the economy, there are now temporary employment agencies that may not have their WC policy in force. In this case, the employer will often get stuck with the bill if a temporary employee is injured on the job.
Subcontractors that are operating without a valid insurance policy or with an expired policy actually become employees as the Workers Comp courts are going to go up the Ladder of Insurance (c) to make sure the injured employee will receive WC benefits
Calling the carrier (not the agent) that is listed on the WC certificate of insurance is a good idea just to make sure there is coverage in place for temporary agencies and subcontractors
Do not use your company’s Workers Comp funds to pursue a fraud prosecution.
Workers Comp supplements paid to an injured employee will only make them much more resistant to return to
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The Four Ways To Cut Work Comp Costs from a claims standpoint are:
- Filing First Report of Injury to carrier immediately
- Medical treatment network in place
- Return to Work program in place
- Treat the injured employee as if they are still on the job as they are still your employee
North Carolina Scheduled Rating Plan – discounts are available if a great safety program is in place and your carrier understands your company’s safety measures
An example of how not having a medical network in place = $1.1 million dollar claim
The new NCCI split points can be a benefit or a curse to a safety program
- High EMod companies are going to take a hit
- Lower Emod companies will experience a benefit
- Safety programs and professionals will be worth their weight in gold for the next few years
Bottom Line – Safety is going to be heavily judged by their WC E-Mod even though the safety department may not be involved in some of the WC decisions

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Split Points – Largest Workers Comp Concern Presently

October 8, 2012 By JL Risk Management Consultants

Largest Workers Comp Concern Today Seen As Split Points

The Split Points became the Largest Workers Comp concern presently. I am presenting at the North Carolina Mid State Safety Council conference tomorrow. A few weeks ago I was contemplating what would be the largest concern for safety, human resource, and risk management personnel.

Picture Of Hand Touching Largest Workers Comp Concern Question Icon

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After speaking with a few of my peers and our clients, the subject of the upcoming NCCI and State Rating Bureaus (other than CA, OH, and NJ) split points came up as the most popular topic of concern. My question to my peers was “Why are split points the topic that is causing the greatest concern presently?”

I received many different answers. The top one was the way our Workers Comp is calculated will now change very quickly at our next renewal.

The other concerns were:

A new variable that may cause an increase to our E-Mod that is beyond our control
We cannot budget for the unknown increase, if there is going to be one
There is a 100% increase in the Primary Loss the first year
There are subsequent increases in the Primary Loss for the next two years
If we go over 1.0 on our E-mod, we cannot bid on government contracts
We are confused as to whether or not our next policy renewal will be affected

Business Strategy Concept Largest Workers Comp Concern Vector

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When I looked over all of the concerns I had received and went back to the responses to my previous posts on this subject, I think the main area of concern can be summed up by saying there is now an unknown variable thrown into the mix that a company cannot prepare for in the future.

My response to that concern would be:

NCCI said only 18% of the companies would be affected. I analyzed one of the reports that came up with this %. I had thought it would be at least 25%
If your E-Mod is .9 or lower, you may actually see a decrease in your E-Mod if your Workers Comp claims status is not worse than in the past
If you have many smaller claims (less than 10,000), your E-mod will likely increase heavily no matter your current E-Mod. The new rating system is going to very heavily penalize employers with multiple injuries.
Your safety and risk management departments are now going to become more of a critical component to your business. If your company has considered WC just a cost of doing business, you may want to get out the checkbook and make sure you have plenty of checks.
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If your company has an E-Mod of 1.2 or higher, you need to take drastic steps to reduce your injury rate.
The reserves on all of your Workers Comp claims will now be even more important. If you do not have online access, it may be good to check with your carrier to see if online access is available. When choosing among carriers at renewal, online access to your WC claims is now even more important
Alternative insurance arrangements such as large deductibles, PEO’s, self insurance, loss groups, risk retention groups, and captives may now be more attractive and cost effective
If your company is in the Assigned Risk Pool because you cannot find coverage in the voluntary marketplace, you need to immediately institute or increase the efforts of your safety program. You may also want to begin considering viable alternative insurance arrangements.

If you are not in a state that is going to be affected by the split point changes, then now is a good time to start preparing for the change. Most states eventually follow NCCI’s lead.

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Large Loss Caps – How Do They Affect E-Mods (X-Mods)?

September 24, 2012 By JL Risk Management Consultants

The Large Loss Caps Effect On Premiums

Capping the large losses incurred by an employer is one way for a State Rating Bureau or NCCI to help control Workers Comp costs. Large loss caps function as a stop gap measure to keep one claim from completely harming an employer’s EMod (XMod).

Picture of Workers Doing Large Loss Caps Concept

For instance, if an adjuster sets the reserves on a serious file to $385,000, the complete amount will never impact the employer’s Mod. If the state’s cap on any loss is $175,000, then the employers E-Mod will never be impacted fully. The $175,000 would be the loss that is input into the EMod formula.

As I have mentioned very often in the past, the idea of the Experience Modification system is to penalize the unsafe employers with repetitive injuries and to lessen the impact of one or two very serious claims.

I was recently reading that NCCI had increased Illinois large loss caps (limitations) almost 300% in the last 11 years from $133,000 to $370,500. Unless I am mistaken, IL now has the highest ones in the nation.

Picture Businessman Watching Computer Screens Large Loss Caps Back View

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The loss caps can be viewed as another method of keeping a safe employer with one bad accident from paying out more premiums than an employer with large group of smaller accidents. The State Rating Bureaus and the NCCI have this concept as one of the underpinnings of their respective E-Mod systems.

If you have access to your Workers Comp loss runs, there is a very quick way to tell if your company has had one of the caps limit a loss. Most State Rating Bureaus and the NCCI will note it by a “#” next to the total incurred figure.

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How Is My E-Mod or X-Mod Calculated By NCCI or WCIRB?

August 21, 2012 By JL Risk Management Consultants

How Is the E-Mod or X-Mod Calculated?

My E-Mod or X-Mod how it is calculated? X-Mod / E-Mod questions are becoming the most popular questions that I receive in person or by email. The new E-Mod rules published by NCCI have quite a few companies concerned over whether they will be paying more premiums even though there was no increase in their incident rate.

Picture of Calculator With Pen Calculating E-Mod or X-Mod NCCI

My last post discussed the E-Mod formula in its rawest form. The more complicated and complete formula is here. I always recommend on not delving into the minutia of the E-Mod (X-Mod) formula.

The main variables that will affect your Mod are:

Number of accidents – having a large number of reported accidents will increase the Mod more dramatically than any other type of occurrence. The E-Mod (X-Mod) system was built around heavily penalizing employers with a large number of accidents when compared to similar companies
Drop in payroll – this is a more common variable than a few years ago. The risk of accidents being spread over a smaller amount of payroll will indirectly increase the E-Mod. As with most financial situations, smaller employers pay more for the same coverage than larger employers
Classification Code change – NCCI and the state rating bureaus have changed a number of class codes since 2006. Some class codes are actually less expensive while others have increased somewhat.
Claims staffs are now smaller – the reduction in size means fewer claims adjusters to handle the Workers Comp claims. Claims that are examined less tend to have higher reserves – that is the nature of the business
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Premium auditors are overworked – as with the claims departments, auditors are being asked to cover more territory and or more employers. Having a brief claims audit can lead to overcharges.
Upcoming NCCI Changes – there are many articles that I had written a few months ago on how the primary loss portion of the claims is going to double in 2013. Employers with E-Mods of 1.2 are going to see increases in E-mods and premiums. There are more increases for 2014 and 2015 which is going to increase the E-Mod even more if you are a higher risk employer.
Employers have reduced safety departments – the best way to have a lower E-Mod and pay less premiums is to prevent an accident from occurring. Due to our present economy employers have been reducing their safety departments with some completely eliminating them. Reducing the size of a safety department can end up costing an employer for up to four years.

The bottom line is to not worry about the E-Mod (X-Mod) calculation. It is more cost-effective to worry about the inputs to the formula.

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What Is An Acceptable E-Mod (X-Mod) For My Company?

August 20, 2012 By JL Risk Management Consultants

An Acceptable E-Mod (X-Mod) Usually 1.0

The question is what is an Acceptable E-Mod (X-Mod). The level of questions on XMods/EMods usually increases this time of year. The largest percentage of policies renew on January 1. The rating bureaus such as NCCI usually begin to promulgate and report the E-Mods for the January 1 polices starting late August and continuing through September.

Business man hand and Percentage Rate Acceptable E-Mod NCCI

There is actually no exact level of an acceptable E-Mod or X-Mod. As the saying goes, we can always do better. As I have posted often, the average E-Mod for the same type of business is 1.0. At this level, your company is considered to have the same level of safety as similar companies.

I have seen Mods as low as .6. I have also seen Mods at 2.2. I am not sure how a company would improve with a .6 Mod. I have seen companies with a very low Mod suddenly increase to over 1.1 with a sudden spate of a few minor accidents.

I look at Mods as being similar to grades in school. It is much more difficult to keep an A grade than it is to improve from a D. The E-Mod formula in its simplest form is:

Actual Losses /Expected Losses.

A company that provides administrative assistants is going to have a much lower level of expected losses as this type of company is considered to be very safe. The unfortunate result of being a low risk company is that a very few minor injuries can cause an E-Mod to increase dramatically.

Using the formula above, the administrative assistant company’s expected losses for a given policy year was $8,500. The actual losses were 9,500. The company’s E-Mod would be

9,500/ 8,500 = 1.11

Vector Graphic of insurance icons Acceptable E-Mod Actual Losses /Expected Losses

Using the same actual losses, a trucking company would have a higher level of expected losses as they are considered to have more risk

9,500/13,500 = .70

The above example shows that companies with lower expected losses must be as safety conscious as any other company. The E-Mod is affected even more heavily by smaller losses.

The bottom line is there is really no such thing as an acceptable E-Mod (X-Mod). If a company becomes lax on their safety for even a brief period of time, an accident that may have been avoidable is now part of their Mod.

A company with a .6 E-Mod must be vigilant in their safety program. A company with a 1.6 E-Mod must improve their safety program immediately while keeping their Mod from decaying further.

“E-Mod, Mod, and X-Mod are basically the same thing. X-Mod is used by California’s rating bureau.

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Are California’s WCIRB XMods Changing Like NCCI’s EMod System?

July 16, 2012 By JL Risk Management Consultants

California’s WCIRB XMods Resemble NCCI E-Mods Now

Are California’s WCIRB XMods changing to be more like NCCI‘s EMod system ? Will X-mods from CA’s WCIRB have a split-point increase similar to the NCCI’s E-mods? I received this question in my email over the weekend.

Graph And Blue Arrow Increase California's WCIRB XMods Like NCCI's EMod System

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The changes to the EMod system are basically going to increase the primary loss part of the claim reserves in 2013 from $5,000 to $10,000. The split point will then increase to $13,000 in 2014 and then to $15,000 + some unknown inflation factor in 2015. Almost all the states have accepted the new primary loss (split point) increases.

There has been much debate whether or not there will be a negative impact on the overall NCCI ratings. NCCI has basically said no. In my opinion, we will know in 2016 after the overall effect of the primary loss (split point) increases. The split point analysis will definitely have a look-back characteristic.

CA’s rating bureau – the WCIRB has said up until today there is no such split point increase on the near horizon. A few years ago, I wrote this article on how the WCIRB is becoming more similar to the NCCI each year. Does this mean the WCIRB will follow suit?

Split Point Arrow California's WCIRB XMods Vector

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I read over the WCIRB’s main website. I saw no articles on their main page that would indicate the split point is increasing. The WCIRB currently differs with the NCCI on the split points. The NCCI is at 5,000. The WCIRB’s maximum primary loss (split point) is currently $7,000.

The WCIRB will likely have to change the split points eventually. A reporter that I spoke with last week from CA seemed to have a wait and see attitude on any upcoming WCIRB changes.

The bottom line is whether you are in CA or in any state, your company’s safety and risk management are going to be very worthwhile investments. The WC accident that never happened is the best company budgeting technique. This technique will become even more prevalent as the rating bureaus change the rules.

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E-Mod Changes for 2015 – NCCI Changes The Formula

May 7, 2012 By JL Risk Management Consultants

2015 E-Mod Changes Makes Safety So Important

In 2015 more E-Mod Changes were produced by the NCCI. A few weeks ago, I discussed the upcoming changes to the E-Mod calculation and gave an example. I then blogged on what will happen to the E-Mod calculation in 2014. Believe it or not, there will also be an increase to the E-Mods for unsafe employers for 2015.

Picture of Calculating E-Mod Changes NCCI

For example, if a state publishes its ratings on 4/1/2015, then any polices starting AFTER 4/1/2015 will be affected due to the changes. I had planned on commenting on the 2015 changes later in the year. Due to the number of questions that I received, I will do it now.

On January 1, 2015, the Primary Loss split point (ceiling) increases to 15,000. As I mentioned, in the prior three articles on the E-mod changes, I want to keep everything very basic. The basic E-Mod Formula is Actual Losses / Expected Losses.

Adding in the Primary and Excess Loss variables –

(Actual Primary Losses + Actual Excess Losses) / Expected Losses

If we break that down further the formula would be

E-Mod = (Total Actual Primary Losses + (Total Actual Excess Losses * Discount Factor))/Total Expected Losses

This is the example table for pre-2013 polices. As in the last example, we are going to use a .3 discount factor for the excess losses. The Expected Losses are 57,750. The Expected Loss figure basically is calculated from payroll per classification code.

Claim No	Loss	Primary	Excess
A101	15,500	5,000	10,500
A102	12,430	5,000	7,430
A103	9,350	5,000	4,350
A104	8,200	5,000	3,200
A105	7,300	5,000	2,300
A106	65,000	5,000	60,000
A107	2,350	2,350	0
A108	2,800	2,800	0
Total	122,930	35,150	87,780

The E-Mod is calculated as:

(35,150 + (87,780 *.3))/57,750 = 1.06

Graphic of E-Mod Changes Rating UP Color Green Check

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After 2014 the numbers would change dramatically

Claim No	Loss	Primary	Excess
A101	15,500	15,000	500
A102	12,430	12,430	0
A103	9,350	9,350	0
A104	8,200	8,200	0
A105	7,300	7,300	0
A106	65,000	15,000	50,000
A107	2,350	2,350	0
A108	2,800	2,800	0
Total	122,930	72,430	50,500

The E-Mod is calculated as:

(72,430 + (50,500 *.3))/57,750 = 1.52

This results in an E-Mod of:

2012 – 1.06
2013 – 1.41
2014 – 1.48
2015 – 1.52

The increase (3%) is not that large from 2013 to 2014. However there was a three year increase of 31%. This type of E-Mod increase can affect your company in two significant ways:

If your company is bidding on contracts, the main contracting company will usually only accept bids from a 1.0 E-Mod sub-contractor. The other side of the coin is that it will be much tougher to slow down an increasing E-Mod.
The increase can push a company into the risk pool where Workers Comp becomes prohibitively expensive in an already bad economy. The voluntary market is very rarely going to write a company with an E-Mod above 1.5.
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As mentioned in one of the previous articles, this example was taken from an actual policy and rating bureau/NCCI Experience Rating Sheets. I do realize there are scheduled debit/credits etc. that would figure into the final premium paid.

All of the examples I gave were for comparison purposes only. Employers with many accidents are going to see their E-Mod jump significantly even with no additional claims or reserve increases.

There are many techniques to reducing your company’s E-Mod. This blog has many recommendations on how to decrease your Mod for any company. The main concept to remember is the E-Mod (X-Mod in California) system is a delayed system. A company cannot wait a few months to start an E-Mod reduction program. The time is today, not tomorrow or next week.

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Emod Changes Article – Woops – I made a mistake earlier

April 25, 2012 By JL Risk Management Consultants

Emod Changes – A Correction To One Figure

The Emod Changes articles that I wrote last week had a slight error. The E-Mod/X-Mod changes that I posted over the last two weeks had an error in them. I rarely ever go back and correct or change a post. This time I thought that I would go ahead and correct it.

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The link to the post is in the last paragraph. Unfortunately, the NCCI had the 2014 Primary Loss figure at $13,500. I originally calculated the Primary Loss at 13,000. The correction actually increased the Mod another .01.

If you are not self-insured, I would heavily recommend looking over the two posts on the 2013 and 2014 changes to the E-Mod. The NCCI has decided to build in an increase for the unsafe companies and to reward the safe companies by increasing the Primary Loss and reducing the Excess Loss.

The basic effect is that in a three-year time span the Primary Loss is going to increase from 5,000 to 15,000. The primary losses are basically where workers compensation insurance is charged at the highest rate.

The Excess Losses have a discount factor and figure into the E-mod at a much less severe rate. If your state has its own rating bureau, they are very likely going to follow the same model. I will post in the next few weeks whether or not any of the State Rating Bureaus are going to use the new model.

The NCCI and most other rating bureaus are going to increase the Primary Loss again in 2015 and then build in an inflation factor for 2016 and beyond. It is time to take control of your E-Mod now. Your company should try to monitor any Emod changes to your rating bureau account.

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Bid On Contracts With High X-Mod But To Smaller Market

April 19, 2012 By JL Risk Management Consultants

Difficult to Bid On Contracts With A High X-Mod

Should we still bid on contracts with a high X-Mod?

I received this question two weeks ago and wanted to answer it. The rest of the question is – How do we reduce our X-Mod very quickly? We receive a large number of employer inquiries on reducing an E-Mod/X-Mod to 1.0 or below. In fact, I just received this question from a California employer yesterday.

Books And Gavel Bid On Contracts Concept

A few main contractors and governmental units will accept contracts from an employer with an E-Mod of higher than 1.0. The unofficial cut-off point is usually 1.2.

I am now seeing more contracting companies that will only accept a 1.0 or lower E-Mod. Some governmental units only require that you have Workers Comp insurance without an E-Mod requirement.

I had posted on the E-Mod/X-Mod being the same as a credit score, but much worse. One of the main concerns is that you can change a credit score much more quickly than an E-Mod. There are no overnight ways to change your E-Mod.

The Experience Modification system keeps an employer from feeling the direct brunt of a very large claim. The X-Mod system does not forgive a series of small lost time accidents.

The reason is 10 smaller claims are much more likely to have 2 or more of those claims turn out to be larger claims. Repetitive injuries will cost a company in the long run.

There are a few legal methods to change your E-Mod/X-Mod more quickly:

Picture of Form with Calculator Pen and Stethoscope Bid On Contracts Concept

Some PEO’s will allow you to take on their E-Mod/X-Mod. Understanding the PEO’s rules and current E-Mod is very critical. Your company will also need to analyze the complicated rules of coming out of a PEO arrangement.
When the economy recovers, if your company adds on a large amount of lower risk payroll such as adminassistants and salespeople, your X-Mod may naturally lower.
Make sure your insurance carrier understands that you have a safe workplace and that you are receiving your proper Scheduled Credits. This can save your company up to 25% of your policy.
Become a self-insured insured organization. You will switch from an X-Mod system to calculating your own LDF’s.
Make sure you know how your X-Mod was calculated and what claims are affecting your X-Mod.
Enter into a captive arrangement. Unless your company is large, you will need to likely fund a rent-a-captive, usually offshore.

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There are more ways to lessen your E-Mod/X-Mod. The ones I mentioned are in no way an attempt to game the X-Mod system. There are companies that will attempt to assist you in gaming the system.

Those methods may work in the short term. They will cost your company dearly in the long-term. The tortoise and the hare fable fits well. The Experience Mod system is a three year corrective process.

The best way to reduce your X-Mod is to invest heavily in a safety program. The accident that never occurred will have a 0% effect on your X-Mod. There are many companies scaling back or eliminating their safety program. In the short term, the reduction looks great on paper. Three or four years from now, it will look like a disaster with your X-Mod.

Please note I used X-Mod and E-Mod interchangeably throughout this post. I have linked to any terms or articles that explain some of the ideas in this post. I did this to avoid a long boring article. I wanted to point out how a High E-Mod or X-Mod made it difficult for companies to bid on contracts.

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E-Mod Calculation Showing Formulas – More Changes Ahead

April 12, 2012 By JL Risk Management Consultants

More Changes Ahead – E-Mod Calculation

Last week, I discussed the upcoming changes to the E-Mod calculation and gave an example. One area I wanted to clarify is that the new E-Mod calculation going into effect for any polices that commence AFTER January 1, 2013.

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For example, if a state publishes its ratings on 4/1/2013, then any polices starting AFTER 4/1/2013 will be affected due to the changes. I had planned on commenting on the 2014 changes later in the year. Due to the number of questions that I received, I will do it now.

There was quite a buzz generated on the two articles I wrote last week on the new E-Mod changes. There is actually much more to the rating increases for companies with higher E-Mods. On January 1, 2014, the Primary Loss split point (ceiling) increases to 13,500.

As I mentioned, in the prior two articles on the E-mod changes, I want to keep everything very basic. The basic E-Mod Formula is Actual Losses / Expected Losses.

Adding in the Primary and Excess Loss variables –

(Actual Primary Losses + Actual Excess Losses) / Expected Losses

If we break that down further the formula would be

E-Mod = (Total Actual Primary Losses + (Total Actual Excess Losses * Discount Factor))/Total Expected Losses

Claim No	Loss	Primary	Excess
A101	15,500	5,000	10,500
A102	12,430	5,000	7,430
A103	9,350	5,000	4,350
A104	8,200	5,000	3,200
A105	7,300	5,000	2,300
A106	65,000	5,000	60,000
A107	2,350	2,350	0
A108	2,800	2,800	0
Total	122,930	35,150	87,780

The E-Mod is calculated as:

(35,150 + (87,780 *.3))/57,750 = 1.06

After 2014 the numbers would change dramatically

Claim No	Loss	Primary	Excess
A101	15,500	13,500	2,000
A102	12,430	12,430	0
A103	9,350	9,350	0
A104	8,200	8,200	0
A105	7,300	7,300	0
A106	65,000	13,500	51,500
A107	2,350	2,350	0
A108	2,800	2,800	0
Total	122,930	69,430	53,500

The E-Mod is calculated as:

(69,430 + (53,500 *.3))/57,750 = 1.48

This results in an E-Mod of:

2012 – 1.06
2013 – 1.41 (calculated in last example post)
2014 – 1.48

Hand Presenting E-Mod Calculation Percentage Arrow Increase

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The increase (5%) is not that large from 2013 to 2014. However there was a two year increase of 28%. This type of E-Mod increase can affect your company in two significant ways:

If your company is bidding on contracts, the main contracting company will usually only accept bids from a 1.0 E-Mod sub-contractor.
The increase can push a company into the risk pool where Workers Comp becomes prohibitively expensive in an already bad economy.

All of the examples I gave were for comparison purposes only. Employers with many accidents are going to see their E-Mod jump significantly even with no additional claims or reserve increases.

©J&L Risk Management Inc Copyright Notice

NCCI Changes Experience Mod (E-Mod) Calculation – Analysis

April 5, 2012 By JL Risk Management Consultants

NCCI Changes the Experience Mod Calculation

In my last post, I discussed the upcoming changes to the E-Mod calculation. The NCCI changes may look simple, but the cost of operating an unsafe business will be substantial. Your Risk Manager and Safety Department will be 100% more valuable overnight.

Picture of Empty book With Handwritten NCCI Changes Formula Graphics

I thought I would analyze the calculation on a very basic level and put everything in layperson terms so the difference between the two calculations shows the financial impact to a company. A safe company will also see a marked difference in their E-Mod in a positive direction.

The basic E-Mod Formula is Actual Losses / Expected Losses. See the bottom of this article for links to more info on some of the terms in this post.

Adding in the Primary and Excess Loss variables –

(Actual Primary Losses + Actual Excess Losses) / Expected Losses

If we break that down further the formula would be

E-Mod = (Total Actual Primary Losses + (Total Actual Excess Losses * Discount Factor))/Total Expected Losses

Let us look at a quick example. These are the numbers if a Mod is calculated before 2013. We are going to use a .3 discount factor for the excess losses. The Expected Losses are 57,750. The Expected Loss figure basically is calculated from payroll per classification code.

Claim No	Loss	Primary	Excess
A101	15,500	5,000	10,500
A102	12,430	5,000	7,430
A103	9,350	5,000	4,350
A104	8,200	5,000	3,200
A105	7,300	5,000	2,300
A106	65,000	5,000	60,000
A107	2,350	2,350	0
A108	2,800	2,800	0
Total	122,930	35,150	87,780

Picture Of Woman Hand NCCI changes Using Calculator

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The E-Mod is calculated as:

(35,150 + (87,780 *.3))/57,750 = 1.06

After 2013 the numbers would change dramatically

Claim No	Loss	Primary	Excess
A101	15,500	10,000	5,500
A102	12,430	10,000	2,430
A103	9,350	9,350	0
A104	8,200	8,200	0
A105	7,300	7,300	0
A106	65,000	10,000	55,000
A107	2,350	2,350	0
A108	2,800	2,800	0
Total	122,930	62,930	60,930

The E-Mod is calculated as:

(62,930 + (60,930 *.3))/57,750 = 1.41

The numbers I had chosen for this example were from an actual policy and rating bureau/NCCI Experience Rating Sheets. The employer would have paid 25% more for the same Workers Compensation coverage.

There other parts of the premium calculation that will change the premium to a degree. I used this as more of an example. This is a stark example of what can happen if there is no E-Mod reduction plan by your company or organization.

For more information on the terms in this article, check out this post on calculating E-Mods and this one.

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EMods XMods Are Available Earlier Than You Think

December 8, 2011 By JL Risk Management Consultants

EMods XMods Are Available Much Earlier Than At Renewal

The EMods XMods are Available earlier than the policy renewal date. There seems to be a secretive process on EMod publishing dates. Most companies wait until their agent, NCCI, or State Rating Bureau furnishes a copy. Quite often, the E-Mods (X-Mods in California) are available much earlier before your renewal date or E-Mod publication date.

Picture of new life of tree Available Earlier of Mods

Most Mods can be manually calculated six months before the Workers Comp policy renewal date and are available from the rating bureaus 3 – 5 months before your company’s renewal date. Calculating a Mod six months before it affects your policy can be helpful in the budgeting process. CFO’s especially appreciate knowing at least if their Mod is going to increase or decrease significantly.

A word of caution – each state may have not yet approved the rating values if a Mod is calculated this early. I have even seen states add in rating values after the policy renewal date. I always recommend to our clients to wait until their E-Mod is calculated and obtain a copy of it ASAP.

We also can monitor when the new EMods are available and pull the Mod sheets immediately. There is no exact date when the Mods are originally published. I guarantee you will not see the Mod when it is originally published no matter the rating bureau.

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There are software packages on the market that will calculate Mods. However, the old saying of garbage in – garbage out applies to using E-Mod software. You have to know which claims and what values will impact your Mod. This can be a time-consuming and confusing process.

If you take a look at an NCCI or State Rating Bureau Experience Modification Factor worksheets, you will see rows and columns of data that may not necessarily make sense. Companies that operate in many jurisdictions and/or have many classification codes will usually have the most complicated EMod Worksheets.

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Experience Mods Will Decrease For Some Employers – Really?

October 13, 2011 By JL Risk Management Consultants

Experience Mods Decrease When NCCI Increases Primary Loss?

The NCCI had reported Experience Mods will decrease for certain employers. One of the new twists to the Workers Comp Experience Modification Factor calculations is that NCCI is going to raise the Primary Loss part of the calculation for your E-Mods (also called EMR, Ex-Mods, Mods). In most states the Primary Loss will double to $10,000 and then another 50% will be phased in totaling $15,000.

Picture Of Hand Drawing Bar Graph Experience Mods Decrease

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The reasoning NCCI had for increasing the primary losses made sense to me. They have not altered this area of the formula in decades. Adjustments did have to occur across the board. Their article on the changes is here.

You may want to obtain a copy of your most recent rating sheet to examine the areas that I am referring to on the Experience Mod Rating Sheets. I walked through the basic formula for Expected Losses here

I was just reading another supposedly cutting edge blog’s answer to what that will cause in the Workers Comp market. They had said that a wait and see attitude is best. I am not so sure if a company should wait and see what will happen. It may be best to take corrective action now.

The changes to the NCCI formula will cause the following:

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Employers with multiple injuries are going to see their E-Mods jump significantly
The buffer that was in place in case an employer had a few large losses is now reduced causing an increased effect on even large claims
States that do not have NCCI as the rating bureau will follow this idea, even California.

If large accidents or multiple small accidents will cause your E-Mod to increase, which employers will see a decrease in their E-Mod? The answer will likely be the ones with low E-Mods already in place. An employer with a very low E-Mod will see it decrease even more.

The savior will likely be the ELR or Expected Loss Ratio. The ELR is basically the expected loss level for a certain classification code in a certain state for a given year. The Expected Primary Losses should increase significantly. See the link above on how that may affect your E-Mod.

For instance if you have a loss of $23,500 the old loss split would have been:

$5,000 Primary Loss
$18,500 Excess Loss

The new NCCI rules would have the same loss as:

$15,000 Primary Loss
$8,500 Excess Loss

Picture Of Hand Presenting Experience Mods Arrow Down With Dollar Sign

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Even with adjustments in the ELR, I do not see how that the E-Mods overall will stay the same. I have gone through a few artificial calculations through by changing the old E-Mod Rating Sheets and even artificially adjusting the Expected Loss Ratios. I did not see one E-Mod decrease. Then again, I am using our client’s E-Mod sheets. Our E-Mod clients do not usually come to us with a rosy E-Mod picture.

This and all changes in the E-Mod system are really down to one area. SAFETY The best risk management method is to make sure that your company does not have too many entries on your E-Mod sheets. I used to say that keeping the numbers of claims down will always lower your E-Mod. I am now convinced that you will need to have no claims hitting your Experience Mod sheets.

There are many alternatives (even for very small employers) to the traditional insurance market. The possible alternatives are PEO’s and Rent-A- Captives. PEO’s have received a large amount of bad press for a very few unscrupulous providers that have been removed from the system. Rent-A-Captives are not new on the scene and can be designed for small employers.

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Top Five Ways To Tell If Your Workers Comp Program Is Successful

August 19, 2011 By JL Risk Management Consultants

WC Program – Top Five Ways To Gauge Success

Below are the top five ways to assess the success of your Workers Comp program. In my last two posts, I covered how to tell if your Workers Comp program is in trouble. There are many successful programs in place among private and public employers. I thought that I would cover the top five ways today.

Picture of Sunset Top Five Ways Shadow Dollar sign and Man

Your E-Mod is below 1.0 or is decreasing each year. Many people including myself have a few problems with the E-Mod systems as being too general, does not take into account enough years of data, and other concerns. However, your E-Mod is the best way to tell if your safety and claims programs are functioning well. If someone asks me about their company the first question I ask is “What is Your E-mod?” The most disturbing thing I hear when talking to employers is the executive or owner does not their E-Mod.
You have a successful light duty program in place. This is one of the variables that have changed over time. When I first started in Workers Comp, there were scant numbers of employers that had a light duty program. Starting a light duty program from scratch is a very arduous task. If one is in place, and just not on paper, a company’s E-Mod will decrease over time.
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You question everything such as your policies, premium audits, any changes made to your policy during the year, etc. This is the quickest way to reduce your Workers Comp expenditures is to have a full justification of all premiums spent on your current and last three year’s policies. Why is a very powerful word.
An injured employee and their supervisor know exactly the location of the doctor or clinic is that treats Workers Comp injuries for your company. The first doctor visit is so important as it sets the tone for the claim. This will lower your E-Mod more quickly than any other recommendation. I have seen it happen again and again.
You know the name of your Workers Comp adjuster, agent, underwriter, premium auditor, and loss prevention rep. There is a team of professionals out there that can assist you with your Workers Comp program. The main thing to do is ASK for help. Most companies that have followed this recommendation were shocked at the level of the help that was available.

This was a rather quick list. There are other ways to tell – the bottom line being that your company is paying less Workers Comp premiums.

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10 Ways To Tell If Your Workers Compensation Program In Failure Spiral

August 17, 2011 By JL Risk Management Consultants

10 Ways To Detect Workers Comp Program Failure Spiral

Your WC program failure spiral usually cannot be reversed after a few years of spinning out of control.

One of my favorite books on entrepreneurship is The E-Myth by Michael Gerber. I have borrowed one of the terms he invented concerning how a company fails over time. I decided to use it to describe a Workers Comp program that is failing and may cost a company greatly or even cause it to totally fail. My Top 10 are:

Picture Man Jumping Rocks Wrecking Ball Failure Spiral

Senior management or ownership view Workers Comp as a quasi-tax or just a part of doing business. This is a slippery slope to paying significantly higher premiums. The old adage of “Who is minding the store?” comes to mind. This has to be the first fix if this problem exists or the other nine will be a grand waste of time. Turning this over to your agent is just the wrong thing to do to save $. This is and has always been my first recommendation when analyzing a company’s Workers Comp situation.
Your company uses subcontractors that do not have Certificates of Insurance. Who do you think will pay when it comes time to pay an injured subcontractor that has no insurance? See my previous articles on The Ladder Of Insurance here and here. One caveat is that all certificates must be valid for the length of the job. An expired certificate of insurance is worthless. Keeping a schedule of when the certificates expire is priceless.
You do not know what your E-Mod is this year and what the E-Mod has been for the last few years. Your agent can supply you with these if NCCI or The State Rating Bureau has not mailed you a copy. If your E-Mod has increased greatly and the explanations that you have been given go against your gut feeling, you should seek out expert help quickly.
You or no one in your company has ever reviewed your Workers Comp loss runs on a monthly basis. You are basically throwing away $$ if you are not doing this on a schedule. I have posted on this so much over the last three years. It is even better if your insurance carrier allows you to look at the claims online. This will also save your company $$ if you decide to have an outside company perform a claims review.
Your company has cut back the Risk Management and/or safety staff to a point of dysfunction. This is one cause for a failure spiral that I see very often in this economy. Companies are looking to cut back any non-essential positions. I have seen this even affect governmental agencies and schools. This one goes hand-in-hand with #1 on the list. Ranking Risk Management and safety as non-essential will save $ in the short run, but will cost your company dearly in the long run. What happens if your safety program suffers and then the economy improves in the coming months (or years)? You will most certainly have a higher E-Mod when paying Workers Comp premiums in better times. For instance, if your E-Mod goes above a 1.0, most companies will not hire your company as a subcontractor as you are considered a bad risk overall. Go here for how your E-Mod is like a credit score, but worse.

Not reviewing your Premium Audit statement and bill.This is one of the main subjects covered in this blog. If you look over your premium audit bill and have questions or have the “gut feeling” that something is wrong, it is time to ask a series of questions.
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One of the old mottoes of this blog was to “Stop just writing checks.”This still applies today.In this tough economy, one cannot just pay a bill without at least reviewing it.If you feel you are in over your head, you may want to seek out a non-agent consultant to help you with this matter.

Sustaining an E-Mod increase of more than 10%. Experience Modification Factors will usually increase and decrease over time.That is a natural part of the workers compensation insurance process.If your E-Mod increases more than 10%, there may be a trend that could possibly increase your E-Mod over the next two years.

One bad accident will not necessarily increase your E-Mod significantly.A series of what may look like minor accidents can wreck your E-Mod. One of the tactics to preventing this from happening is in the blog post before this one.Reviewing your loss runs on a monthly basis will uncover the reserves that have been increased on certain claims.

Not seeking out various bids on your Workers Comp program and alternate types of insuring your employees. There are many types of insurance alternatives beside the regular first-dollar insurance program. There are programs such as:

Self Insurance
Large Deductible
Small Deductible
PEO’s
Carve-out programs
Captives
Risk Retention Groups
Group packages

These are but a few of the different insurance coverages under Workers Compensation.There are many alternatives that are legal and may provide your company with insurance at a lower cost.

Not following the Six Keys to Workers Comp Savings that is in this blog very often. Check out the keys I am referring to here. The keys are my recommended actions once a clam occurs from the second it happens. I have performed studies over the years on large groups of claims. The keys are what I have found will usually cost employers 1600% more on their claims if not followed closely.
Not going with your “gut feelings.”No one company or person knows your business better than you do overall.If you feel your Workers Compensation insurance situation is somehow not right, there is likely something wrong. Most employers that contact us do not necessarily have a specific problem.The company owner or risk manager just feels there is something amiss in their Workers Comp program.

Did your company have any off the Top Ten Failure Spiral list? If your company has more than two, the alarm bells need to sound before more off the list are added to the likelihood of a failure spiral.

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XMods EMods EMR and Credit Scores – Differences

July 20, 2011 By JL Risk Management Consultants

Credit Scores And XMods EMods EMR

In my last post, I covered the similarities between XMods EMods EMR and credit scores. This post is about the differences. Some of the differences can be painful. I covered some of the differences in this article.

Differences

One of the main differences between the two is that credit scores can be corrected on any time in the past with no time limit. EMods or XMods are very difficult to correct once they are tabulated – on your Unit Stat Date. Even if you find an error, if it is more than four years old, there is usually no way to correct the E-Mod in this circumstance.

If the Experience Mod calculation was done incorrectly, you can correct it for up to four years in the past. However, if the reserves (Total Incurred) had too high a figure but have been tabulated at the Unit Stat Date, you usually will be out of luck. That is why it is very critical to have the correct reserve figures on each of your Workers Comp files before your E-Mod (Unit Stat Date) is tabulated. I cannot express the importance enough.

The delayed E-Mod system is another major difference. If you work on your credit scores now, some of the results will immediately show in your credit file. Your recent work on such programs as safety or return to work program will not tabulate fully into your EMod for three or four years. Patience is a very important virtue with the Experience Mod system.

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We have seen companies give up on their E-Mod reduction program only to see the E-Mod lower then increase again after abandoning the reduction program. This is one of the points that Senior Management in either a public or private employer must take into account. It is up to the Risk Manager or Workers Comp contact to educate their Senior Management that the results will not be immediate.

I have written many posts on an E-Mod reduction program. There are so many I cannot link to them. However, if you use the search box further down on the right side of the page, you can search the term E-Mod reduction for a list of posts on this subject.

As always, if you feel you need assistance, please feel free to email or call us.

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E-Mods X-Mods EMR And Credit Scores – Similarities

July 19, 2011 By JL Risk Management Consultants

Similarities – E-Mods X-Mods EMR And Credit Score

A few weeks ago, I posted on E-Mods X-Mods EMR.

I received a large number of questions on E-Mods X-Mods, better known as Experience Modification Factors. The questions from the blog readers were the same type that I have seen over the last few years. I will not repeat the questions to avoid making the post too long.

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Due to a large number of emailed questions on E-Mods X-Mods, I wrote this article in early 2010. This post and the one in 2010 show the importance of understanding the Experience Modification Factor process.

E-Mods/X-Mods can be thought of as a credit score. I thought I would compare and contrast credit scores and E-Mods. X-Mods/E-Mods seem to have a few mysterious qualities. I will try to remove some of their mystique.

Similarities

We all have credit scores from the three major credit reporting agencies ranging from 400 – 800. Obtaining credit is almost impossible with a very low score. If any credit is advanced, the borrower or credit card user must pay extremely high interest rates.

Most E-Mods that I have seen are between .6 and 1.8. If a company with a high E-Mod wants to obtain insurance, the rates will be much higher if workers compensation insurance can be found in the regular insurance marketplace.

Picture Of Two Woman E-Mods X-Mods Similarity

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Insurance carriers report the claims data to a rating agency such as NCCI, WCIRB, or an independent state rating agency Creditors report your credit data to one of the three major credit reporting agencies

Both systems are based on lagging data. Credit systems have gotten better on being current over the last few years.E-Mods are based on past years data and use the E-Mod that was calculated six months prior to renewal.

You can obtain a free credit report once per year. Your insurance agent or rating bureau will usually provide an Experience Rating Sheet once per year, usually just before renewal. There is a cost to obtain either more than once per year.

Rating bureaus and credit bureaus are both reporting agencies. Neither one will correct the data that is reported.Borrowers must contact the creditor to have their credit data corrected and then reported again to the bureau. The same applies for a company trying to correct their Workers Comp insurance rating information. The carrier usually has to correct the data and report it to the rating bureaus.

If a consumer does not review their credit report carefully, they may be overpaying for credit due to inaccuracies on their credit reports. If the Experience Mod rating sheets are not reviewed carefully, an employer may be overpaying for Workers Comp coverage.

Picture Of Hand Covering E-Mods X-Mods Gold Coins

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X-Mod/E-Mod Rating sheets can sometimes seem very complicated and confusing as there is a large amount of data and calculations on the sheets. I have seen Experience Rating sheets so large they could not be emailed. They could only be printed and mailed. My last credit report almost made my head spin as the three reports added up to over 150 pages. It was like reading a novel of numbers.

A reactionary approach to E-Mods and credit scores will not suffice for improving either one. Improving either one is best with a proactive action plan. A borrower that waits until they apply for credit to find out their credit scores may be in for a shock. The same can be said for an employer that waits for their renewal to review their E-Mod.

The best time to start working on a credit score for the future is when the report is obtained from the credit bureaus. The same can be said for E-Mods. Credit scores and E-Mods take quite some time to improve overall.

Credit reporting agencies and Workers Comp rating bureaus still make mistakes. This has improved over time. I think it is due to the tremendous amount of data that has to be processed accurately. Even .001% of a billion calculations still is a significant number.

Next Up – Differences between credit scores and E-Mods

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Four Workers Compensation Success Measurements

June 16, 2011 By JL Risk Management Consultants

Four Workers Compensation Measurements Of Success

My last post had covered the four Workers Compensation measurements of success or failure. Instead of combining both voluntary market and self insureds into one post I thought it best to separate them into two posts. The four measurements of success for the voluntary market where an insured pays a premium are:

Arrow signage Four Workers Compensation Success

Wikimedia Commons – Keith Ramsey

E-Mods/X-Mods
Current reserve levels for claims included in the Experience Period
Employer measurements provided by insurance carriers such as lag time, etc.
Bottom line – premium

E-Mods/X-Mods

Unfortunately (of possibly, fortunately), the Experience Mod system is like a credit score but much worse. When you apply for a loan, you are usually judged on just one number from the three credit bureaus. The same can be said when a company applies for Workers Comp insurance.

Hand Emphasizing Four Workers Compensation Risk Management

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I have seen so many safety professionals and Risk Managers that are judged by this one number. There are so many other variables that indicate how an employer’s Workers Comp program is functioning. A complicating factor is that many employers bidding on contracts are required to have an E-Mod of 1.0 or less.

I realize there has to be a cutoff point. Is an employer with a .99 E-Mod that much safer than one with an E-Mod of 1.1? That is almost statistically insignificant. The company with the 1.1 E-Mod would not even be allowed to bid. The safety manager, risk manager, and CFO of the 1.1 E-Mod company would be under tremendous pressure to reduce their E-Mod. Most E-Mods are based on a three-year set of data. One good year or even two may not reduce the E-Mod enough if the employer had one extremely bad claims year up to four years ago.

Current Reserve Levels

The E-Mod system can be a good measurement of how a company performed on safety and loss reduction in the past. How would a company judge how they are doing presently? I would think it is the current reserve levels of all claims. Reserves = Total Incurred – Paid. I would be remiss if I did not count in what is paid on the closed claims as part of this figure. Calculating the effectiveness of a Workers Compensation program using the paid amounts on closed claims can be complex.

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A Workers Comp adjuster setting reserves will usually consider the reputation of the employer. Please check out the Six Quick Methods To Reduce Your E-Mod Part I and II as some of the variables that establish an employer’s reputation with an adjuster. If your company does not have a working relationship with your adjuster, it can be a very expensive missed opportunity. Does your company have a written plan of action on how to handle Workers Comp claims – more importantly, have you shared those with the carrier’s claims staff?

One variable that will throw off this measurement is the claims that are less than 90 days old. An adjuster may set a very large reserve upfront and then reduce it 60 – 90 days into the claim. There would need to be a cutoff point for new claims.

Insurance Carrier’s Employer Data

Most insurance carriers’ claims departments track the performance of an employer on such goals as lag time, which is the number of days an employer takes to file the first report. There are many other employer variables tracked over time. Your claims adjuster is fed those figures constantly. What does your company’s performance variables say about your Workers Comp reputation? Most carriers will provide you with the data if you request it.

Bottom Line – Premium

Woman Counting Four Workers Compensation Money Bundled

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This is the tell-all figure. Premiums paid should always be the focus of the performance. There are inherent dangers in using this figure only. If your company grows by 300% (congrats), then your premiums are going to grow significantly. We receive calls/emails from employers very often when their premium audit increased the premium by a large amount just due to a payroll shift or change in the classification of employees.

In the case of downsizing or payroll growth, a factor needs to be built that would lessen the effect of a payroll change. We have now come full circle as that would be your E-Mod. As I have posted previously, if you want to win the E-Mod game, you must play by the rating bureaus’ rules.

This post was more of a summary of a much larger post. I will post on the four measurements of success if you are self insured next time.

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Workers Comp Success (or Failure) Bottom Line Measurements

June 15, 2011 By JL Risk Management Consultants

Workers Comp Success Bottom Line Measurements

Workers Comp success (or failure) bottom line measurements are readily available for employers. I have read on a few blogs and received questions recently concerning how a Workers Compensation program can most easily measure its success or need for improvement. This is a very complex measurement as there are so many variables that are not in control of the personnel or departments that administrate over the program.

Picture Of Businessman In Finish Bottom Line workers comp Success

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I am not a great advocate of benchmarks as each company operates differently. That is the nature of the business world. I have seen many benchmarking studies that have basically tried to compare apples with oranges using the same comparison system.

There are basically four sets of numbers that measure how a Workers Compensation program is working. They are:

E-Mods/X-Mods
Current reserve levels for claims included in the Experience Period
Employer measurements provided by insurance carriers such as lag time, etc.
Bottom line – premium

I want to be fair to self insureds as I am often reminded to include the self insurance angle on my posts. The measurements for self insureds are:

Loss Development Factors (LDF’s)
Current reserve levels (including all claims)
Same as above #3
Bottom line – payments made over the life of the claim

Picture Of Workers Comp Success Crossing Winning line

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There are differences between measuring the voluntary market where a premium is paid and a self insurance program. The two types of programs should never use the same internal measurements. Other programs such as large deductibles and captives should use a hybrid mixture of the two lists.

The one area that ALL comparisons should possess is a consistent measurement. I have seen Risk Managers actually lose their jobs over a very high E-Mod even though the RM was not even on the job when the variables were set in place. After the RM was terminated, the E-Mod then decreased sharply. As I have posted often, Workers Comp is a heavily delayed-results system.

Whether we like it or not, the E-Mod or LDF is the “proof is in the pudding” measurement. It is the system in place. As Charles Givens wrote in Super Self, “If you want to win, you must play by their rules.”

I will cover the two lists in the next post. Workers Comp can be boring. I do not want to add even more to that boredom this evening.

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Two Questions on EMR From One Of Our Readers

June 10, 2011 By JL Risk Management Consultants

Two Questions on EMR

One of our readers had two good questions on EMR.

I often see you write about the E-Mods or X-Mods in your blog. Is an EMR the same thing as the E-Mod? This was a good question from one of our newsletter readers.

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The Workers Compensation Experience Modification Factor has many acronyms such as:

E-Mod
Ex-Mod
X-Mod
EMR

The EMR or Experience Modification Rating is the same as an E-Mod. It is just a different and slightly archaic acronym. The X-Mod usually refers to a California Experience Modification Factor.

The second question was – Can I calculate my own E-Mod anytime during the year without having to wait for NCCI or The Rating Bureau to publish our E-Mod. Yes, you can calculate your E-Mod anytime during a policy year. There are a few great software packages that will allow you to calculate your E-Mod.

The one dangerous thing is that when you calculate your E-Mod right after policy renewal or any other time during the year, the E-Mod may not be that accurate. The Workers Comp rating systems by NCCI and the Rating Bureaus are a delayed system. Your Workers Compensation reserves do not really begin to affect your E-Mod until the policy period after the claim occurred.

A good question to ask your agent and carrier concerns when your Workers Comp E-Mod is calculated and from what data. This will give you a check figure to go against so that you are comparing apples to apples. Do not be surprised if quite a few insurance personnel do not understand the exact data that is used to calculate your E-Mod.

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Three Ways Experience Mods Can Penalize Your Company

June 1, 2011 By JL Risk Management Consultants

Three Ways To Penalize Your Company’s Experience Mods

Actually, E-Mods (X-Mod, Ex-Mods) do not actually directly penalize your company’s Workers Compensation premiums. However, there are a few situations where your company’s E-Mod can experience a very sharp increase. I thought I would list three. There are others.

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Having numerous claims – nothing wrecks your E-Mod like having a large number of claims. The E-Mod systems have built in reductions if your company experiences one large claim. If your company experiences many claims, your E-Mod is usually going to skyrocket. This comes about due to the Primary Losses (up to $5,000 each) are not reduced whatsoever when calculating your E-Mod. I often hear “We only have small claims.” As I posted in this article, there is no such thing as a small claim.
Not monitoring your claims loss runs – Your loss runs have so much info on them that can be useful in keeping your E-Mod in check. As I have posted often, having online claims access is golden for monitoring your loss runs as you can check on your claim reserves every day if you wish.
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Ignoring the Six Keys To Cutting Your Workers Comp Costs. I have studied Workers Compensation claims and premium audits over the last 20 + years and found some trends with employers or governmental agencies that have increased or already high E-Mods. I have noted six ways that employers drown themselves in claims and/or cost themselves big premium $$. I started with three and added in three over the last few years due to the changes in the Workers Comp environment. I posted the six on LinkedIn recently. I will go over each of the six next time.

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Three Top Ways Experience Mod System Can Help Your Company

June 1, 2011 By JL Risk Management Consultants

The Experience Mod System’s Hidden Good Side

The Experience Mod system can actually silently help your company. The Workers Compensation Experience Modification Factor (E-Mod/X-Mod/Ex-Mod) system can seem complicated and cause very high premiums at times. Three times over the last few weeks, I have heard or read different inaccurate comments about the E-Mod system.

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I thought I would post a reply to those comments by pointing out how the E-Mod system may actually help your company.

One bad claim can ruin our E-Mod – In most states, The E-Mod system has a maximum claim amount that can be charged to your company’s E-Mod. As I have posted in the past, four $25,000 claims are much harmful than one $100,000 claim. One bad claim will not hurt your company. Rating agencies realize that companies may have one serious accident in the course of doing business.
We pay our small claims out of pocket – The E-Mod system will discount the medical only claims by some factor – usually 70%. There are many dangers when paying your small claims out of pocket such as medical control. The 70% discount was designed to encourage employers to file all Workers Comp claims with their carrier.
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One bad year of claims would ruin our insurance program – The E-Mod system does not balance this out as well as #1 in the list. However, the E-Mod system can keep your company from taking such a hit to your insurance premiums by spreading the risk over three years of Experience data. This is one of the advantages of paying regular insurance premiums and not being a large deductible or self insured unless your company or organization is large.

I am not that big of a fan of the Experience Mod system. It is the one in place. Winning the E-Mod battle means playing by their rules. The E-Mod system does have a few penalties built in for employers that wish to play by their own rules. I will comment on that next time.

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E-Mod (Ex-Mod) Review – Leave This Part Alone For Best Results

April 6, 2011 By JL Risk Management Consultants

E-Mod (Ex-Mod) Review Of Outstanding Reserves

An E-Mod (Ex-Mod) review is something to leave to the experts. Usually, approximately one third of the Total Incurred value should be Outstanding Reserves. That is a very, very rough approximation.

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I received a few question on this figure.This is an overall estimation on the thousands of premium audits or file reviews that I have done over the years.Your outstanding reserves can change overnight with the payment of one large medical bill.

This is one area where claims adjusting experience is golden.There is no exact formula or method for knowing which files to question the level of outstanding reserves.

Many years ago as a Workers Comp adjuster, I used to actually increase files when a certain file was brought to my attention that was deficient is reserves-often as a result of a claims review with the insured. Most adjusters decide to do a reserve increase review while the file sits in front of them. The

For clarification Total Incurred = Previously Paid $ + Outstanding Reserves. The previously paid figures can be reviewed with leakage audits. Those reviews are totally different task best left to a highly experienced expert. Leakage audits are complex and are not E-Mod (Ex-Mod) reviews.

Most Workers Comp adjusters are drowning in work. Knowing which files to discuss is only 50% of the answer. Knowing which files to leave alone is the other 50%.I often advise client to not ask for a full file review of every open file. I am not advocating any type of deception.

Targeting certain files for an Outstanding Reserve inquiry will make your Workers Comp claims staff appreciate not taking the time to review a claim with an outstanding reserve of $98.67.That is a waste of time and resources for all parties.

One consideration is to not look at just files where the employee lost time from work.The Medical Only claims usually cause more needless funds to be paid out than any other type of claim.

I will cover Medical Only claims in the next article.

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Workers Comp File Reserves – You ARE Running Late

March 31, 2011 By JL Risk Management Consultants

Workers Comp File Reserves Important To Catch Up

The Workers Comp file reserves important this time of year. I have posted over the last two weeks on the process of performing a Workers Compensation file reserve review as a way of reducing your E-Mods or X-Mods. I am using January 1 renewal policies as a reference point.

Vector Graphic of Workers Comp File Reserves Working on Office

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If you have a renewal date other than January 1, then please consult this article on the formula for calculating the due dates for your E-Mod reduction plan.

If I am correct, I left off with you having received your paper loss run or having online access. If you have online access, you have saved yourself at least 20 hours of work.

Now that is April 1, you have 90 days to analyze your loss runs, communicate your concerns, and possibly reducing your reserves. Doing this step incorrectly can have disastrous results on your E-Mod or Ex-Mod. Which files are you going to now contact your claims department on this week?

Graphic Of Workers Comp File Reserves Document Standing In A Row

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Some of our clients seems to think that the files that are the oldest or have the highest reserves are the ones to question. That is not necessarily correct. I have written many blog posts on Total Incurred. This is one time that the Total Incurred figure (Paid + Outstanding Reserves) is not as important as the Outstanding Reserves.

The Outstanding Reserves (Total Incurred – Paid) is basically what the Workers Compensation adjuster thinks will be paid out in the future of the claim. If it is a new claim with a serious injury, the Outstanding Reserve figure will be extremely high. Do not waste your time or the adjuster’s if this is the case. Monitor the claim and reserves for future reductions.

If your insurance carrier whether by paper report or online access (and you can run your own reports) can only send you the OPEN files, that will save some time. Negotiating a closed claim is very fruitless unless there were duplicate payments or there was subrogation on the file. That is water under the bridge.

One very obvious question is how much Outstanding Reserves are there on a certain claim or all of your claims? If the figure is low, then it may be best to leave it alone. Usually, approximately one third of the Total Incurred value should be Outstanding Reserves. That is a very, very rough approximation.

I will cover more on this the next time. I try to keep the posts from dragging on too much.

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E-Mod X-Mod Ex-Mod Question From One Of Our Readers

March 31, 2011 By JL Risk Management Consultants

Reader Question On E-Mod X-Mod Ex-Mod California

Yesterday I received a question on Workers Comp E-Mod X-Mod Ex-Mod in California.

Recently, our California Ex Mod greatly increased due to a few open claims that are dragging on and on. My policy doesn’t expire until mid-year and I am being charged an “endorsement – additional” by my carrier, this amount they explained is based on our Ex Mod increase. We have been in business for over 25 years and never had this issue arise. Is this normal practice of workers comp insurance for an additional premium amount endorsement?

Graphic of People Icon Carrying E-Mod X-Mod Ex-Mod Green Big Increase Arrow

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This is a slightly edited version of a question that we received yesterday on Workers Comp Ex-Mods or X-Mods in California. Would any of our expert readers want to input their opinions? I have my opinion which I will share later in the week. I wanted to see what our blog readers thought on this situation.

I received three other questions on E-Mod X-Mod Ex-Mods from three different states. Thanks for your questions. I will try to address them over the next two or three weeks.

Workers Comp Policy Just Renewed – Cut Your Work Comp Costs Now

January 12, 2011 By JL Risk Management Consultants

Cutting Cost Of Workers Comp Policy Just Renewed

Your workers comp policy just renewed recently. This is a critical time in the cost cutting.

Picture Of Woman Workers Comp Policy Just Renewed Counting Money

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This can apply to all Workers Compensation policies. I am now mentioning it as most policies renew on January 1st. Now is the time to start working on cutting your Work Comp costs.

I have posted very often on when to start your company’s Workers Comp cost cutting by cutting your E-Mod. Attempting this just before your policy renews is a complete waste of time. Your policy renewal date has 0% to do with reducing your Workers Comp E-Mod or X-Mod (California).

There are two ways to look at the timing of your Workers Comp E-Mod. Six months before your policy ended, your Workers Comp E-Mod was already set in stone. The cost-cutting way to look at it is usually six months after your policy renews, your new E-Mod is set in stone for your next policy year with very few exceptions.

Hand Presenting Workers Comp Policy Just Renewed Insurance Carrier

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I have posted numerous articles on this in the blog. Feel free to use them as a guide for when to start your Workers Comp E-Mod reduction program. If your policy just renewed, the target date for beginning to look at loss runs is February 1st. Negotiating lower reserves on your files is a laborious process. An insurance carrier is not just going to reduce reserves because you called them on the phone.

This is my article on Workers Compensation Reserve Review Timing. It is timeless information. Knowing your policy renewal date is critical to understanding your policy’s E-Mod process.

Make sure that you know which files that may need reserve reductions. Having a claims department review the wrong claims for reserve reductions can actually cost your company in the long run. So, if your workers comp policy just renewed, now is the time to get to work to save WC $$$.

D Ratio On My Experience Rating Sheets – What Is It?

June 13, 2010 By JL Risk Management Consultants

Term Of The Day – D Ratio

A D Ratio is a variable used in a workers compensation experience rating plan. It is applied to the expected losses to determine what percentage of those expected losses are to be considered as primary losses within the rating formula.

Once discovered, the D-Ratio is the ratio of primary expected losses to the total expected losses for any certain classification code. It is then used on a workers compensation experience modification factor (emod) worksheet.

Table of of Expected Loss Rates D Ratio Experience Rating Plan

The D-Ratio is important because the experience rating formula splits injury cost between a primary amount and the remainder. Because primary losses are given more weight in determining the experience rating modification than are excess losses,it is an important factor to determine.

One can think of the Excess Losses as the discounted losses beyond a split point. A split point

D-Ratios are produced by a rating bureau and published in that bureau’s experience rating plan manual. Each one varies by state and classification code.

The ratio cannot necessarily be disputed as they are attached to the associated Classification Code. The ratio is calculated from a set of actuarial formulas used by each state rating bureau, WCIRB, or NCCI.

What Is An Experience Modification Factor in Workers Compensation?

April 28, 2010 By JL Risk Management Consultants

Experience Modification Factor E-ModCan Be Debit, Credit or Neutral

There has been much discussion in the last week on the Experience Modification Factor (E-Mod or X-Mods). My definition is your company’s Workers Comp credit score.

Vector Graphic Of Employees Experience Modification Factor Presentation

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From NCCI – Experience modifier (mod) is a multiplier applied to the premium of a qualifying policy and provides an incentive for loss prevention. The mod represents either a credit or debit that is applied to the premium before discounts. If your company’s loss experience is more costly on the average than other company’s loss experience in your industry, the result is a debit mod, or surcharge, on premiums. If your company’s experience is less costly than the industry average, you will receive a credit mod, or discount, on your premium. The acronyms are Mod, E-Mod, or Emod.

If your Mod is equal to 1.0, you have a neutral Mod. A neutral Mod means that you receive no credit or debit from the Mod part of your calculation. Your company has the average Experience Mod for your industry judged from your associated Classification Codes. The rating bureaus such as NCCI, WCIRB, or an independent rating bureau publishes and often updates the class codes in your company’s states of operation.

From CA’s WCIRB – which are expressed as a percentage, compare the loss or claims history of one company to all other companies in the same industry. Generally, an experience modification factor of less than 100% reflects a better-than-average experience, while the same number that exceeds 100% reflects a worse-than-average experience. Accordingly, an experience modification factor that is greater than 100% usually increases the cost of your workers’ compensation premiums, while an experience modification that is less than 100% usually decreases the cost of your workers’ compensation premiums. The acronym is X-Mod or Xmod.

Experience Modification Factor (EMod/X-Mod) Credit Score From Hell

February 14, 2010 By JL Risk Management Consultants

Experience Modification Factor (EMod/X-Mod) Is Like A Credit Score

The Experience Modification Factor can be thought of as a credit score. There have been many articles written recently on the upcoming credit law changes effective February 22nd. The articles made me think which is the hardest to improve or correct if there are errors – your personal credit score or an E-Mod/X-Mod?

Blackboard Experience Modification eraser

Wikimedia Commons – Alessandro Patelli

One of the ways that credit scores and E-Mods differ is the length of time in the past that a correction can be made if an error exists. There is no limit on how far back an individual can search for an error in their credit report. Even if the error happened 10 years ago, you have the opportunity to disprove the error.

In the Workers Compensation system, anything older than 45 months cannot be reviewed (with very few exceptions)- no matter how gross the policy or reserve error might have been to your E-Mod. There is one way to go further into the past and that is with a complaint to the Insurance Commissioner. We have found the complaints on very old policies to fall on deaf ears. The only time that we have been able to have a very old policy fixed was due to an error by the State Rating Bureau, not the Workers Comp insurance carrier.

This is a very important point. Your company needs to monitor its Workers Comp Experience Modification Factor every year. Errors must be found quickly or they will just float off into the past.

Diagram of Credit score like experience modification factor

Wikimedia Commons – User:Pne

On the other side of the coin, the Workers Comp E-Mod or X-Mod system does not reflect on your safety record of the present. A safety program has to be in place for four years. We had assisted a Risk Manager of a South Carolina transportation company. Their E-Mod actually increased and the Risk Manager’s feet were held to the fire. What management did not realize is that the Workers Compensation system is also a delayed system. Having a great claims record for just the current year will mean little. A safety and claims program has to be in place for three years or more for the effect to be fully realized. In the economic environment of today, many senior management teams can become very impatient very quickly.

Making Workers Compensation the project of the month and moving onto something else will usually end up making everyone very frustrated. The process needs to be in place for 36 months or longer to see its full effect. The first year of a great safety program will not show up for two years at a minimum on the E-Mod and it will only have an effect of 33% or less.

Icon Credit Card Experience Modification Receipt

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I am posting generalities, but the preceding paragraphs are very true. The E-Mod or X-Mod systems do not show any historical data beyond 45 months and less than 12 months. Do I agree with the system? I always answered that it is the system we have in place, so we have to deal with it.

A correction to a personal credit report will have an immediate effect. The credit scores indicate what is happening now with your personal finances. An E-Mod is delayed by at least 6 months. Credit scores operate very far into the past and right up to the moment.

How does a company counteract or manage the EMod or XMod system? There needs to be someone on staff that understands the systems fully, even if it is an outside consultant. There needs to be a workable plan in place. That plan must be sustainable. Claim reserves and policies need to be examined quarterly if not more often. If anything looks odd, it probably is.

Workers Comp E-Mod X-Mod Forecast Errors By Expert

October 30, 2009 By JL Risk Management Consultants

E-Mod X-Mod Forecasting Errors Due To Unit Stat Date

Workers Comp E-Mod X-Mod calculating errors.Recently, I had come across some work from two so called Workers Comp “experts” that had guaranteed the accuracy of their E-Mod/X-Mod predictions for their client employers. I had thought this was interesting and decided to examine their predictions further.

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The one obvious error in calculating the E-Mods/X-Mods for the next year is that these were magically performed at the end of the prior policy year. This will just not work. There is a date called the Unit Stat date that is the deadline for the reserves on the applicable files to be applied to the Experience Rating calculations.

The Unit Stat date is usually 6 months after the expiration of the last policy. To be entirely accurate, a consultant could as of today accurately calculate the future E-Mod/X-Mod for a policy that expired 5/1/09 to be applied to a policy that started on 5/1/10.

Why is the system set up that way? The six month delay is to enable the Workers Compensation adjusters to have time to assess accurate reserves on the files. The usually means to increase the files – rarely does it reflect many reductions. I am not for or against the Workers Comp Experience Rating System. It is the system we have in place.

One of the most frustrating situations occurs when the insurance carrier reports the claims data late. The tardiness can wreak havoc when the rating bureau calculates the Experience Mod again and assigns a new one to an insured. The employer may never see the recalculation coming.

EMod XMod Changes Coming Soon – Very Important

September 17, 2009 By JL Risk Management Consultants

EMod XMod Changes Upcoming Will Change Premium Audits

WC EMod XMod changes upcoming may cause a new type of review. As I had posted a few months ago, the NCCI(R) has invented a new way to promulgate (calculate) Experience Modification Factors (E-Mod/X-Mod). I just received notice that the rating bureau for California -WCIRB- is preparing to follow suit. The new E-Mods are based somewhat on a different set of statistics. Will all companies’ E-Mods change from the former calculation? This is a yes and no answer.

Picture of tree XMod Emod changes upcoming workers comp

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If your company does not have any claims, the E-Mods/X-Mods will not change significantly. If you have more than one or two claims, it will change dramatically. This is going to change the rules on how companies such as ours perform Premium Audit reviews for employers. The way that it is being done now will be a thing of the past.

What one area will employers and companies such as J&L have to be very versed in to be able to do accurate Workers Compensation premium audits for employers? How I found out was by reading the statistical study used as a basis for the change. It was buried deep in the study.

I am glad that we are strong in that area and have been doing very similar reviews for 14 years. We were lucky. You heard it here first.

EMod XMod Calculations Changing 10-1 Will Indirectly Affect Premium Audits

Premium audits structure changes soon. The structure of doing premium audits and E-Mod/X-Mod reviews are Changing October 1st. All the rating bureaus will be changing how they calculate E-Mods including California. As I said in the last post, there are some major components of claims that will need to be examined more closely after the new changes.

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Without becoming too technical, a claims review background will now be needed to fully understand how companies’ E-Mods/X-Mods are calculated. The E-Mod/X-Mod calculation sheets will even look different. Unfortunately, the formula for calculating the E-Mods/X-Mods will now be more complicated. The new rules will add on multiple columns of claims information where before there was only an injury code, status code, and the total incurred figure.

A loss run review is now even more important. Pulling or requesting a current loss run will make reviewing the loss run easier. I have posted numerous times about having online access to your claims information. This will now even be more important. Having inaccurate claims information will be very costly.

I will post more on this situation after the first of next month when the changes become effective.

How Are Your Workers Compensation Premiums Calculated

August 23, 2009 By JL Risk Management Consultants

How Are WC Premiums Calculated?

How are your WC premiums calculated? Your premiums are calculated from a formula that has no less than 34 steps to it. Let’s first look at what is the driving force behind what you pay in Work Comp premiums. The reserves, better known as total incurred on the file, is the catalyst of the whole process.

Picture of Hand Premiums Calculated Holding Dollars

Wikimedia Commons – Milad Mosapoor

As I have said many times before, WHAT YOU PAY IN PREMIUMS HAS NOTHING TO DO WITH WHAT IS PAID OUT ON THE WORKERS COMPENSATION CLAIMS FILE.

The reserves are what the adjuster thinks you will pay out on the file for the life of the claim. As you read this, do you know what the total incurred is for each of your Workers Compensation files? Most employer do not know the answer. Do not feel like you are in the minority. Have your loss run pulled immediately. The Total Incurred figure usually appears as a Indemnity Total Incurred, Medical Total Incurred, and Expense (ALAE) total incurred. Do these Incurred figures look OK to you?

Do not feel bad as most adjusters take 3 years of on-the-job training to feel confident in setting reserves on files.

If not, you may be in for a real shocker. Immediately ask for your loss runs from your insurance carrier that show all of the files that are open. Review them closely to see what you are paying for in your premiums.

If the total incurred for a file looks high to you, ask the adjuster to explain their reserves.If you feel like you need help with the loss runs, consult a Workers Comp claims consultant as soon as possible. Remember, you are charged for THREE years for the total incurred on a claim.Tomorrow – More on the Premium Calculation

What Can We Do To Lower Our E-Mod?

April 10, 2009 By JL Risk Management Consultants

Lower Our E-Mod Or X-Mod

How can we lower our E-Mod? This is a question I received from one of the blog readers after I posted the Workers Comp E-Mod or X-Mod Factor formula earlier this week. This will fit well into the post that I was going to do on breaking down the E-Mod formula.

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If you look at the Experience Modification Factor formula, you will notice that most of what is on the top of the fraction is also on the bottom of the fraction. The real difference is that E-Mods and X-Mods come down to the actual losses divided by the expected losses. There are many other values in the formula so it is not quite that simple. Reducing your actual losses or increasing your expected losses is important. Even more important is reducing the number of losses that reach $5,000.00. This is known are the Primary Loss portion of the claim.

The Actual Primary Losses are what costs your Workers Comp insurance program the most premiums due to an increase in the E-Mod. The Actual Excess Losses still cause a rise in the E-Mod, but not as significantly as the Actual Primary Losses. How does this happen the Excess Losses have a discount factor of sorts built into the E-mod equation. Whew!

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Let’s get back to how to save Workers Comp $. The ways that you can reduce your Workers Comp E-Mod are:

A devout safety program – an accident that never happens saves you 100% of the $ compared to if the accident did happen.
Using the Four/Five Keys to Saving Workers Comp $ – you may search for those blog posts using the search box. Type in keys
Reviewing your claims loss run every time your receive it
Know when your Workers Comp reserves actually affect your E-Mod also known as the Unit Stat date.
Make sure your Workers Comp payroll figures are accurate. There is a big difference between actual payrolls and Workers Comp payrolls.
Make sure your Workers Comp classification codes are correct. The SIC or NAICS codes have very little to do with your Workers Compensation Class Codes.

The last two bullet points have more to do with adjusting your Expected Primary and Expected Excess losses.

Next Up – Do Not Be Fooled By A Small Claim Reserve

Experience Mod Equation Looks Complicated – Is it?

April 6, 2009 By JL Risk Management Consultants

The Experience Mod Equation Revealed

The Experience Mod equation – does it look complicated? I have been asked often how the Workers Compensation E-Mod/X-Mod is calculated. I am also usually asked why a certain company’s E-Mod increased so dramatically. The E-Mod individualizes a company’s risk to that company.

The E-Mod is calculated figured from the following formula:

Actual Primary Losses	+	Ballast Value	+	Weighting Value Times Actual Excess Losses	+	(1 Minus Weighting Value) Times Expected Excess Losses	=	Total A
——– Expected Primary Losses	+	——- Ballast Value	+	——————- Weighting Value Times Expected Excess Losses	+	—————— (1 Minus Weighting Value) Times Expected Excess Losses	=	——- Total B

For the E-Mod, divide Total A by Total B.

The Actual and Primary Losses are affected the least by the other rating factors. The weighting value appears on the bottom left of the Experience Mod calculation page from the respective rating bureau (NCCI, WCIRB, etc.). Most of the rating bureaus have now increased the Primary Loss maximum figure in the last few years. NCCI has for instance increased the value to 15,000.

The simplest way to analyze the E-Mod formula is:

the losses that you had for the last three years divided by the losses that your company was expected to have over those same three years.

The simplest E-mod formula is your company’s losses / your company’s expected losses. The expected losses come from similar company’s data in your state or states in which your company operated over the previous four years – leaving out the most recent policy year.

I will break down the formula later this week and what employers can do to lower their E-Mod.

Can Experience Modification Cap Really Work?

February 19, 2009 By JL Risk Management Consultants

Experience Modification Cap – Effect on Workers Comp Costs

Does the Experience Modification Cap really help reduce employers’ Workers Comp premiums?

The Ohio Bureau of Workers’ Compensation’s board of directors recently approved a cap on premium increases aimed at preventing unforeseen spikes in workers’ comp costs.

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This is a case, once again, whether the government has launched an artificial modification to the E-Mod system that is in place in one form or another in every state. I am not sure that this will work as it would seem that the most safe employers would be subsidizing the least safe ones. The E-Mod system for Workers Comp is the system that has worked for many years. The NCCI has modified some of the rules, but not the way the E-Mod system works.

Someone will have to pay for the cap and it will be the safer employers. This may even cause a somewhat safe employer to be more lax in their safety. If my company was going to receive a cap and I could cut the safety budget, then would I not try to figure out how to have a minimally safe company? That may be an extreme example. Workers Compensation’s rating, audit, and premium system works well for the environment that it exists in for the most part. Why alter what actually works?

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I had read where some employers’ premiums had swung wildly, but the way the E-Mod system is built, that one bad accident or one bad year is spread over three years. I think where the main fault lies with the Ohio BWC is the way that the Classification Codes are set each year. I would not say that is the reason for sure, as I would have to look at the rates for each classification codes for years to see what the changes were overall.

The bottom line is that while the Experience Mod system is not perfect, it should not be altered as one group of employers will end up subsidizing another if the system is changed.

Your E-Mod Is Not Only Important Number in Workers Compensation

January 30, 2009 By JL Risk Management Consultants

E-Mod And X-Mod System

I have posted very often about how your company’s E-Mod /X-Mod can make or break your Workers Compensation insurance budget. One of the most popular questions we receive is “Our E-Mod is low and we have had no accidents. How can our premium have increased so much in such a short amount of time?”

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One of the shortcomings of the present Experience Modification system is that in a bad year for your company’s overall industry, even a good safe employer can suffer greatly. If companies that share your Classification Codes had a bad year with Workers Compensation claims, then your company will share in their loss as the Class Codes your company possesses will become more expensive even if your company has had a good year with Workers Comp incidents.

For instance, if your company is a trucking company that has instituted many safety measures and lowered your E-Mod this does not mean a decrease in premiums. The Class Code for Long Haul Trucking is 7228. If most of the long haul trucking companies in a certain state had many accidents, the NCCI or State Rating Bureau will increase the 7228 loss cost or advisory code. If the increase in 7228 was very sharp, then you may see a large increase in your company’s premiums even though your E-Mod is reasonable.

Graphic Processor Circuit Board E-Mod Design

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E-Mods can individualize you company’s safety efforts, but only to a certain point. The E-Mod/X-Mod system is a good system, but it does have its faults. Many employers are looking to PEO’s, Self-Insurance, and Captives as alternatives to regular Workers Comp insurance policies. One of the main reasons is that the cost of your Workers Comp insurance program is not affected by outside influences as much with some of the alternative programs.

Captives are becoming very popular as they are the best way to have the premiums that employers pay being only based on the specific employer, not a group of similar employers. In other words, your safety efforts are rewarded more than some of the other programs.

Small Claim Value Does Not Exist in Workers Compensation – Part IV

October 5, 2008 By JL Risk Management Consultants

Part IV – Experience Mod Calculation From A Small Claim

A small claim value can end up costing your company dearly.

From the last post, the Workers Comp adjuster closed the claim out after 4 years and spending out $1,000.

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The file was originally reserved at $10,000. The file was over-reserved by $9,000.

Using Variable A (Excess Loss Factor) from the 09/30/08 post of .20, let’s look at the real claim dollars with the loss.

Recalculated Primary Loss Over-reserved = $20,000
Recalculated Excess Loss Over-reserved = $5,000

What does all of this mean? With the way that the Experience Mod calculations are structured by the NCCI or State Rating Bureaus, small claims are costing your company much more than you may realize.

The Workers Comp Experience Rating systems are structured to make sure that one huge claim will not ruin your E-mod. The flip side is that a few small claims can and will wreck your E-Mod and your Workers Comp insurance program for years to come.

A claim that is under $5,000 can turn out to be large. As you can see $4,000 of a Primary Loss is much more expensive than it looks.

The bottom line is to not just zero in on the big claims. All claims that are reserved as a Lost Time file should be tracked closely. Even medical only claims should be tracked to avoid festering.

There Is No Such Thing As Small Claim – Part II – Math

September 1, 2008 By JL Risk Management Consultants

A Small Claim Can Be Very Expensive Per Unit

Please see my post from September 27th on small claim. This is part two of that post.

In the 9/27/08 post, I had pointed out that the first $5,000 of the Total Incurred of a Workers Comp claim can cost up to 500% more than the reserves beyond $5,000.

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The math goes something like this – it may be good to have your company’s Experience Modification Worksheet from the NCCI or your state’s Rating Bureau sheet with you to look at for comparison. I will refer to the NCCI sheet. In the next post, I will cover where to find this info on a few of the State Rating Bureau sheets.

I am reviewing one of our clients’ E-Mod sheets from an NCCI state. The page I am looking at is the one at the very end of the last page with some variables (A) through (I) on it along with the E-Mod. There is a variable on the left side under (A). That number represents a sort of discount factor. In the one I am examining, the factor is .79.

In the calculations to set your E-Mod, the (A) variable is subtracted from 1.0. In this example 1- (A) = 1 -.79 = .21. This is the factor for any Total Incurred above $5,000. Let’s look at how that affects your E-Mod:

The first $5,000 or the Primary Loss is not discounted or it is equal to 1.o
Any part of the loss after $5,000 would be charged to the E-Mod at .21 or 21% of the first $5,000

Picture Woman Counting Small Claim Money

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Looking at this a little further, this means that the first $5,000 of any loss will cost as much as the next $23,800.

What does this mean to you? There is no such thing as a small claim(c). See my next post on how to even the playing field in light of this revelation.

Very Important Rule Change By NCCI

August 30, 2008 By JL Risk Management Consultants

NCCI Important Rule Change

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A Very Important Rule Change by the NCCI –

As I started to cover in the last post, late in 2003, the NCCI made a rule change that benefited Workers Comp insurance carriers greatly and ended up costing employers millions every year.

The old rule was that no Workers Comp policy may appear in an Experience Modification Factor (E-Mod) for a certain employer more than three times. That meant that multiple policies could not be piled into an employer’s E-Mod. Now, there are no actual limits on the number of policies that can be calculated into an E-Mod for a Workers Comp policy.

To keep this post as concise as possible, there are three basic rules. They are:

The policy must have incepted (started) between 12 and 57 months prior to the policy.
The policy periods covered cannot exceed 45 months in total .
A policy can be used multiple times as long as rules #1 and #2 are not violated.

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This rule can create very dangerous situation for employer that decides to shorten their policy period. You could end up stacking 4 or more years of policies into your E-Mod. This is especially true if one of the oldest polices had a very bad year for accidents. Under the old rule, the policy could not be used if it had been used three times in the past for an E-Mod. In the next example, which was from a real policy, I will show how this rule can be very dangerous.

The reason that the NCCI had instituted the new rule was that certain unscrupulous agents or employers were stacking short-term policies to manipulate the rules to cause a lower E-Mod. We have seen this a few times in our Workers Comp policy reviews.

InsuranceMoz.com – links to Insurance directory resources and information websites.

One of NCCI Rules That Is Unfair To Employers Covers EMods

August 28, 2008 By JL Risk Management Consultants

NCCI Rules On Calculating E-Mod

One of the newer NCCI rules that applies to policy renewals and the way the E-Mod is calculated was a radical change. The change is the rule for how many times a Workers Comp policy can apply to an E-Mod went from three to an infinite number of times as long as the total number of months covered is 45 months or less.

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In most situations, the NCCI will only apply three policies even with the new rule.

The old rule was that a policy could only apply to an E-Mod a total of 3 times. We do not think it is fair to employers that a policy could apply to an employer’s E-Mod so many times, as from what we have seen, this makes the E-Mod artificially higher than it should be in most cases.

This new rule is quite a departure from the “maximum 3 times” rule. There is not much that an employer can do about this rule change other than making sure that the 45 month barrier is not crossed for inclusion into the E-Mod of any of their policies.

We will cover this new rule in the next posting on NCCI rules.

Accidents Affect MOD 4 Years to 24 Months From Policies

August 21, 2008 By JL Risk Management Consultants

Not All Workers Comp Accidents Affect MOD Immediately

Did accidents affect MOD in my Workers Comp policy year? Is it true that what happened in my last Work Comp policy year will not affect the Experience Mod for my current policy year? I had a much better year with accidents in 2007 and a terrible one in 2003.

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You are correct. The basic rule is that all Workers Comp policies that started from four years and nine months ago (57 months) up to 24 months ago will affect your Workers Compensation Experience rating.

Your Workers Comp policies have always started on 10/01. So, your upcoming Experience Rating for 10/01/08 – 10/01/09 will be based on all policies that started from 1/1/03 through 10/01/06.

Therefore, your policy for 10/01/08 will be affected by the policy years:

10/01/03 – 10/01/04
10/01/04 – 10/01/05
10/01/06 – 10/01/07

The NCCI has published revised rules on the months that the Experience Period covers. There are many intricacies to the Experience Rating Period. The revised rules make the Experience Rating Period ever more complicated.

The bad year you had will drop off on the 2009 – 2010 policy year.

A Caveat To The Accidents Affect Mod Statement

The additive effect of Mods can be devastating to an employer’s Mod history if the claim remains open for each of three policy years and the file reserves keep increasing while still in the Experience Period. The claims reserves will hit the Mod three times wit the new figures the claim department set each time. (Ouch!)

A question we receive very often will be answered in the next posting that has to do with Experience Rating and Workers Comp reserves.

E-Mod Spike – Article Reader Question on What Is A Bad Increase?

August 19, 2008 By JL Risk Management Consultants

Employer’s E-Mod Spiked Over Two Years

Our E-Mod has increased quite significantly from .8 to 1.29 over two years’ time. What could have caused this spike?

Question – We are renewing our Workers Comp policy in October.

Our agent has said that if our E-Mod increases much more, certain insurance carriers may not write us and we may even have to go into the Risk Pool.

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We are a multi-state restaurant corporation based out of California.Is an E-Mod of 1.29 a bad Experience Rating?Answer – An Experience Mod of 1.29 may not necessarily be that bad. Your Workers Comp carriers and other insurance companies may be looking at the large increase from .8 to 1.29.

That is quite an increase in your Mod over a short time. This means that your company has become basically 50%+ more risky to underwrite than in the past. You desperately need to have an expert review your Workers Comp claims loss run now to see if your files are over-reserved. Did you recently change carriers?

Watch out for the Unit Stat date for your policy. That is when you need to have your Workers Comp reserves in line.The overall insurance market in California has experienced a reduction in premium rates over the past few years. However, there is a 16%+ overall premium rate increase pending.

I have seen where a group of trucking companies had to go into a risk pool and their E-Mods were basically below or equal to 1.0! This was due to a lack of Worker Comp insurance companies that will underwrite a certain Classification Code.As your E-Mod (Ex-Mod in CA) increases, the likelihood that a conservatively priced insurance carrier will underwrite your company decreases. Remember, all carriers can file Classification Rate exceptions to the state-supplied rates. Next Up – Another Question on E-Mod/Ex-Mods.

Experience Modification Factor Mysterious Number

August 15, 2008 By JL Risk Management Consultants

Experience Modification Factor Known By Many Names

We have received quite a large number of questions regarding the Workers Comp Experience Modification Factor over the past few weeks.

The Experience Modification Factor also goes by Experience Modification Rating, and Experience Modifier.

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The E-Mod has many acronyms such as:

Ex-Mod (California)
X-Mod (California)
Mod (National)
E-Mod (National)
EMR
ExMod, XMod, and EMod.

The definition of an E-Mod is: A multiplier applied to the premium of a qualifying policy and provides an incentive for loss prevention. The mod represents either a credit or debit that is applied to the premium before discounts. If your company’s loss experience is more costly on average than other companies’ loss experiences in your industry, the result is a debit mod, or surcharge, on premiums. If your company’s experience is less costly than the industry average, you will receive a credit mod, or discount, on your premium.

There are three types of E-Mods:

Debit – More Than 1.0
Credit- Less Than 1.0
Neutral – Equal to 1.0

E-Mods are one of the most confusing areas of Workers Comp insurance, as it affects such a large number of policies.

Experience Modification Factor Calculations Easy Formula

The E-Mod X-Mod calculations are simpler than one might think. The experience modification is determined by comparing actual losses to expected losses for the experience period based upon the employer’s industry. In other words, clerical employees are compared only to other clerical employees; a restaurant is compared only to other restaurants.

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The number of man-hours worked is used to indicate the employer’s audited premium dollars, since an employer with 200 employees would be expected to have more claims than an employer with two employees. For example, a restaurant is only compared to other restaurants with approximately the same gross premium amount.

The formula adjusts the actual losses used so that frequency is given greater weight than the severity of an injury or illness. For example, six claims that occur over a three-year period totaling $20,000 have a greater impact against the experience mod than one claim in three years totaling $20,000. Again, both the industry and business size are considered. Claims with zero costs are not included in the experience modification calculation.

Bottom Line – why does this sound so hard? The harder it sounds, the less you can check behind the insurer to make sure there were no mistakes in your policy or premium/payroll audit.

Educating yourself on how the Mod system work will help you realize the way you are charged for your Workers Comp premiums. Check out the many articles on the workers comp insurance rating system in the blog. Click on the E-Mod X-Mod Category at the bottom of this article to view pages upon pages of articles to help you in your quest.

If you need any assistance, we are here to help by using our Contact Us page.

My X-MOD Calculation Sheets – How Can I Obtain Them?

August 3, 2008 By JL Risk Management Consultants

California X-Mod Calculation Sheets

A Question From One of Our Readers – In one of your old posts, you went through how Workers Comp E-Mods (Experience Modification Factors – also known as X-Mod Calculation sheets) are calculated. My company i

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s in California only. How do I go about obtaining a copy of my X-Mod calculation sheets?

The rating organization that covers California is the Workers Compensation Insurance Rating Bureau (WCIRB). They are responsible for all the X-Mod calculations in the state of California.

You SHOULD HAVE received an E-Mod directly from the WCIRB, your insurance carrier, or your agent. I would suggest contacting your agent to obtain a copy. If you are a small company that does not use an agent, you should contact your insurance carrier. The X-Mod Rating Sheets are a little confusing.

It may be best to have your agent explain the sheets to you. You may always contact us using the contact form on the J&L website.

If you would like to contact the WCIRB, their web address for the worksheets can be found here.

The WCIRB is very helpful, but they will not give out any type of advice or an opinion, especially over the phone.

Next Up – How to Dispute an X-Mod Calculation

Your E-Mod Is 10 Times More Difficult to Correct Than Your Credit Score

June 16, 2008 By JL Risk Management Consultants

Correction To Your E-Mod Can Be Difficult and Delayed

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Your E-Mod can be corrected. The deck is stacked against you when you want to correct your company’s Workers Compensation Experience Mod.

The reasons:

You can correct what has happened with your credit experience far into the past. You cannot, and this is an important point, correct your Workers Comp reserves except for the current year. No insurance carrier will allow a correction of the reserves into prior policy periods.
If you decide to correct your credit score, what you do today counts for today. In Workers Compensation, your current efforts will not show up for approximately three years. Patience is an important virtue with Workers Comp.
You have a credit bureau that will assist you if you have a problem, even if the creditor is not cooperating. You must deal with your carrier to report the proper information to your State Rating Bureau or NCCI. Do not expect your State Rating Bureau or the NCCI to correct your information. They will only report what the insurance carrier reports.
Due to federal regulations, your credit report is easier to read than in the past. Your Experience Mod rating sheets can be very confusing when trying to decipher them. 2018 update – The WCIRB California Rating Bureau has allegedly simplified the Experience Rating Sheets. Check out their new simplified EMR rating sheets.
2018 Update – there have been a few times where the reserves on prior loss runs or policies were adjusted by the carrier and reported to the rating bureau with corrections. Many of them involved some type of litigation status.

There are others, but these are the major concerns/complaints that we receive from employers. I may add in more examples over the next few days.

Next Up – The Top 10 Questions We Receive

You Have Another Business Credit Score That Needs Your Attention II

June 15, 2008 By JL Risk Management Consultants

Business Credit Score Part II

What is The Secret Business Credit Score?
It is your Experience Modification Factor (E-Mod, Mod, X-Mod, etc). During all of my Workers Comp presentations, I point this out. If it is a longer presentation, I usually go through how E-Mods are calculated.

Picture of man hand doing Credit Score on computer

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If you think about it, even your personal credit has a score. I usually equate a score of 692 with an E-Mod of 1.0. That means you are average, or you have had an average amount of Workers Comp claim results compared to others in your industry if your company has been classified properly with the correct classification codes.

Anything below a 1.0 is the same as having a credit score of above 692. That means a score of 750 is similar to an E-Mod of .70. If you have an E-Mod that low, you will have more insurance carriers bidding for your business, just as you would have more banks interested in you with a credit score of 750. Your company will pay lower Workers Comp premiums just as you would pay lower credit terms on a loan.

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An E-Mod of 1.0 though, if compared to your grades in school, would be a “C“. Is a C acceptable to you? How do you get to an “A“?

Does that all sound easy and direct? Well, it is just not that easy.

Check with me on the next post and I will tell you how Workers Comp E-Mods are 10 times more difficult to improve or have errors corrected than with your D&B report or your personal credit score.

By the way, if you are reading this post, you have taken the first step to improving what you pay for Workers Comp services including your Workers Comp Credit Score better known as an Experience Modification Factor.

Safety Council Conference Presentation For Mid State

June 11, 2008 By JL Risk Management Consultants

North Carolina Mid State Safety Council

I presented yesterday at the North Carolina Mid State Safety Council’s conference on Ways to Cut Workers Compensation Costs. When I brought up the subject of how $25,000 = $100,000, I received a few questions after the conference. I thought it would be good to share it with the blog readers.

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We do have potential clients call and ask why did their E-Mod increased when they have had no large claims. This post may explain some of the reasons.

The easiest way for me to explain this one is for everyone to look at their Workers Compensation Experience Mod sheets from the NCCI or your state rating bureau.

The Workers Compensation system is designed to penalize employers that have many small claims versus an employer that has one very large claim. Why? Because the likelihood of a group of small claims having one or more of those claims turn into a big claim is very likely from a larger group of small claims.

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How this works is that the Primary Loss portion of a claim is capped at $5,000. The Excess Portion (anything above $5,000) of the claim has no cap, but has a discount factor. Look at the bottom of column A on the NCCI sheet. There should be a number there such as 020, which is actually 20%. The Excess Portion of the claim is multiplied by this factor, which in essence gives you an 80% discount on the Excess Portion of all claims. It is much more complicated than that, but we are just keeping it simple here.

OK, hang with me on this one.

$100,000 claim = $5,000 Primary + ($95,000 *.2) = 24,000 applied to Mod Calculation
Five $5,000 claims = 25,000 Primary = 25,000 applied to Mod Calculation

The conclusion to draw from this is that there are NO SMALL claims. The first $5,000 is being applied at a rate of FIVE TIMES the rate of everything after the first $5,000.

Please note this does not count the Medical Only claims.

What should an employer do to combat the NO SMALL CLAIM costs? I will cover that in my next post.

One Claim Wreck Our E-Mod and Premiums – What Can We Do?

May 16, 2008 By JL Risk Management Consultants

Can One Claim Wreck – Completely Ruin Your Workers Comp Premium

Just one claim does not wreck an E-Mod. My company has had a great Workers Comp safety record over the past eight years. We had one serious injury two years ago. I know that it will start to hit my E-Mod this year. The Total Incurred of the claim is $75,890. Other than a few medical benefits only claims, this is the only claim we have had for many years. Is this one claim going to wreck my E-Mod and Workers Comp premiums?

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Actually, this one claim is going to negatively affect your E-mod, but it is not going to wreck it. The way that Workers Comp E-Mods are calculated diminishes the effect of one bad claim.

Your claim of $75,890 is split into two figures:

The first $5,000 is called a Primary Loss. This part of the claim is charged against your E-Mod and premiums at full cost, so to speak.
The other $70,890 is reduced by some factor like 80%. This part is called an Excess Loss.

As you are a medium sized business, you will have a claim here or there that may be more than minor. The Workers Comp E-Mod system shelters employers from the full brunt of one bad claim.

2018 – Update – The Primary Loss as of 2015 is $15,000. When the question was asked the primary loss in #1 above was correct. NCCI changed the primary loss figure over a three year period from $5,000 to $15,000.

The result of this is to make companies with repetitive claims pay more of their fare share by increasing the E-Mod significantly. One bad claim still does not kill your E-Mod. The problems we now see are companies with more than one claim.

Next Up – The Other Side of the Coin – many small Workers Comp claims, but no major ones.

Two Days from Now – Warning – There is no such thing as a small Workers Comp claim.

Workers Comp Rates When Will They Go Down – Readers Question

May 15, 2008 By JL Risk Management Consultants

Workers Comp Rates Go Down Slowly – Be Patient

Businessman In Shock After Looking At Their Watches Workers Comp Rates Sitting On Park Chair

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A reader poses a great question on Workers Comp rates.

My business had three bad years and then we had a much better year with our Workers Comp accidents. Now that we have had a better year, will our Workers Comp rates go down?

Workers Comp Rates On A Delayed System

Actually, your good Workers Comp accident year will not have any effect on your upcoming E-mod. Workers Comp experience rating runs on a delayed system. If your Workers Comp policy period is 1/1/08 – 1/1/09 then the policies that will affect your E-mod are:

1/1/04 -1/1/05
1/1/05 – 1/1/06
1/1/06 – 1/1/07.

Diagram workers comp Rates Go Down Graphic

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Your great year for 1/1/07 – 1/1/08 will affect your E-Mods for:

1/1/09 – 1/1/10
1/1/10 – 1/1/11
1/1/11 – 1/1/12.

If you keep having great Workers Comp accident years, the E-Mod will decrease in a stair-step fashion. A good safety program should kickstart your E-Mod reduction program. Safety removes risk. Risk affects the E-Mod directly and vice-versa.

The main E-Mod reduction task is to keep your number of claims down for more than just one year. Three good claims years should return your Mod to the levels before you had your spate of bad years.

This blog dedicates itself to informing the public – especially employers – on how to reduce your workers comp rates. Feel free to search the blog for any work comp subject.

You had said that you had bad/great Workers Comp years. Check out the next post for exactly what may look like a good or bad year, but may have the total opposite effect on your E-mod. Workers Comp E-mods sometimes may not be what you had expected to happen.

The Unit Stat date becomes ever important as companies look to reduce their E-Mod. Self insureds do not have to concern themselves with the Unit Stat Date. However, a self insured has to be ever-vigilant to watch their LDF for budgeting purposes.

Follow this link to a Unit Stat Date explanation.

Our main website is www.cutcompcosts.com

Experience Mod or E-Mod Compared to Credit Report

May 1, 2008 By JL Risk Management Consultants

The Experience Mod Is Like A Credit Score But Worse

The Experience Mod or E-Mod X-Mod can be compared to a credit report with nightmarish results in some cases. How does a credit report compare to the E-Mod or X-Mod?

Picture of businessman working Experience Mod on desk reviewing

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The main difference between a credit report and a Workers Comp E-Mod is how fast each can be corrected. Let’s say that you have your business’s E-Mod and your credit report sitting in front of you. If you find a way to correct something in the credit report, the results are immediate.

If you want to try to improve your E-Mod and take steps to improve it, the results will take many months or years to show for your efforts.

Another major difference is that if you find an old error on your credit report, you can fix the old error immediately.

For instance, if you find an error from 2000 on your credit report, you can fix the error and improve your credit score. You cannot usually correct a Workers Comp reserving error from the year 2000. It just does not usually work that way.

I have presented often on this very topic. One of the major concerns involves safety employees and consultants not being given enough time to turn around an Experience Mod to a level desired by an employer.

Experience Mod Operates Over Time

One has to remember the Workers Comp E-Mod system operates on a delayed basis. It is not the place for immediate results. Often, the results of a good safety program may take up to five years to show its full effect.

Check out my next blog to see why correcting an error on your loss run from the year 2000 will rarely help your E-Mod.

Claims Affect Premiums For How Long – Reader Question

February 6, 2008 By JL Risk Management Consultants

Claims Affect Premiums For Multiple Years

How do claims affect premiums for my company? This is a question we receive very often.

The first thing to look at is the state laws and rules on how your E-Mod or X-Mod is calculated. That will have some bearing on the length of time.

Vector Graphic of Man Claims Affect Premiums And Flying Money

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Most states calculate the E-Mod/X-Mod over a three-year span. However, the three-year span does not “kick-in” immediately the next year. What happens, for example in 2008 will not affect your insurance company premiums until the 2010 policy. Why? Workers’ Comp is calculated on a delayed system. The E-Mod for a claim in 2008 will hit the E-Mod on 2010, 2011, and 2012 policy years.

Yes, you pay THREE times for a bad claims year. That is the way the Workers Compensation system is structured for losses. Do you pay 1/3, 1/3, and then 1/3 of the bad claims year of 2008? NO, You will pay more like 60%, 60%, and 60%. But wait, that does not add up to 100%. You can now see how a bad claims year can be very expensive.

The usual reason for having a bad claims year is the number of claims, not just one big claim. The old saying that five $20,000 claims is much more expensive than one $100,000 claim is very true in almost all cases.

Update – The main rating bureaus – NCCI and WCIRB have both altered their E-Mod X-Mod formulas to make repetitive claims much more influential on what you will pay in future years for workers’ compensation coverage.

The NCCI or State Rating system that is in place amplifies the amount that the Work Comp carrier reserves on the claims. Is it a fair system? It is the one we have in place. The best way to stay out of the system is with a safety program, making sure that you are being charged the proper premiums, and making sure that the reserves on your files are accurate.

Next Up – SC Governor Sanford is now in Federal Court trying to keep Workers Comp under control in SC.

Safety Person Should Be Most Concerned With This Number

February 4, 2008 By JL Risk Management Consultants

A Safety Person vs. The X-Mod or E-Mod

Is there one number that a safety person should be the most concerned with in their job? I have asked this question often when presenting to Loss Prevention, Safety Engineers and similar positions. The answers that I often hear are:

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Number of accidents
Lost workdays
Self-inspection results

Those are all important. When a VP or President of a company asks me what number is the most important in evaluating a Work Comp program, I always say the Experience Modification Factor (E-Mod or X-Mod). Why? Because it is the distilled number of what the claims costs are for a certain company. In other words, it is the insurance carrier’s notation of how the safety program is performing over a few years, not just one.

Many safety personnel have been fired due to the E-Mod X-Mod not turning around quickly enough. Employers and their safety departments sometimes do not realize that the Mod covers from four years ago until one year ago.

What just happened in the prior year, be it good or bad, does not show up on the E-Mod X-Mod until the following year. A great way to avoid concerns with the safety department or risk manager is to forecast the Experience Mods into the future.

Oh, and self-insureds are not immune from the E-Mod. There is a different term for the E-Mod for self-insureds and it is the Loss Development Factor (LDF). The LDF may cover more years than the E-Mod, but it is still the ultimate evaluator of a company’s safety program.

I often hear from safety personnel that the insurance is “some other department’s problem.” Nothing could be further from the truth.

Bottom Line – The LDF or E-Mod/X-Mod is the Workers Comp safety program’s effectiveness turned into cash.

Next Up – How long does one bad year of claims cost a company’s Workers’ Comp program?

Workers Comp E-Mods and Loss Runs – Few Misconceptions

November 7, 2007 By JL Risk Management Consultants

Most Workers Comp E-Mods And Loss Runs Misconceptions

The Workers Comp E-Mods and Loss Runs misconceptions that we have seen are:

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Only the open claims make a difference on the E-Mod – any claims opened within certain policy periods affect the E-Mod no matter whether they are closed or open on your Workers Comp loss runs. (See the previous post on Experience Periods)
The claims for last year will affect the E-Mod – Your Experience Period does not include the claims from the last year. For example, if your policy is renewing on 1/1/08, then the claims for 1/1/04 – 12/31/06 will be counted, BUT NOT THE TOTAL INCURRED FIGURE FOR 12/31/06 or 12/31/07. See our previous posting on Total Incurred. The Unit Stat Date is critical.
I only need a loss run yearly – For better control of your Workers Comp Costs, you should have online access to your reserves and the ability to run a loss run on demand. Your insurance carrier should be supplying loss runs at least quarterly. Online access is the best way to look at loss runs. Check with your Work Comp insurance carrier’s IT department to see if you are allowed online access. Most carriers have the service available for free.
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Worst of ALL – I cannot control what reserves are on a claim – Communication with the Workers Comp adjuster will always help keep reserves at a reasonable amount. See our previous blog on the Six Ways to Cut Workers Comp Costs. Doing those five things and letting your adjuster know you are doing them will help greatly.
I cannot tell if the total incurred or reserves are out of line – If you feel you are in over your head, then consult with a reserving expert. We negotiate reserves with insurance companies and third party administrators daily.

Next Up – The Claim is Over in the First 48 Hours

Experience Modification Factor – Calculating Your WC Premium

August 24, 2007 By JL Risk Management Consultants

Experience Modification Factor Calculations

The Experience Modification Factor calculations consist of four main areas.

Vector Icon of Experience Modification Factor Calculating Finance

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As I mentioned in a prior post, your Workers Comp premium calculations include 34 steps. However, those are the steps just to calculate your Experience Modification factor, also referred to as an E-Mod or an X-Mod.To make a very long story short, there are four main elements that determine your E-Mod:

total incurred
claim frequency
classification codes
amount of payroll per classification code

The payrolls per classification code are the basis for what is referred to as “Expected Losses”

Why was the Total Incurred from the last post so important? The Expected Losses are divided by the “Actual Losses” to calculate your E-Mod. Actual Losses are derived from the claims’ total incurred. The lower the total incurred is, the lower your actual losses. The lower your actual losses, the lower the E-Mod.

An E-mod is calculated on the total incurred SIX months after the close of the policy period. If you have a January 1st renewal date, the State Rating Bureau or the NCCI will calculate your E-mod on 7/1. How can you be charged for premiums six months after your policy has ended? Actually, you aren’t, as Workers’ Compensation runs one year behind.

Graphic Calendar January 1st Experience Modification Factor Calculations

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If your renewal is 1/1/08, your Experience Period is from 4/1/03 through 12/31/06. Any policies that started 4/1/03 and ended by 12/31/06 will have an effect on your 1/1/08 renewal for your 1/1/08 – 1/1/09 policy period. The Experience Period runs out on 6/30/07 at the close of the business day. Usually, If the reserves/total incurred are reduced by $1,000,000 on 7/1, that big chunk of $ will still show up on your E-Mod and eventually your premiums, even though it was reduced the next day.

I know this info is about exciting as watching grass grow, but it is cold hard cash we are talking about with your premiums. We will come back to the Experience Mod later. Whew! That was enough numbers for anyone to have to look at for some time.

Coming up next week:

Monday – The Unregulated Part of Your Work Comp Insurance Premium – you and the government/Department of Insurance have no control over it, and it can kill your insurance budget. Only one person has control, and it is not your Workers Comp insurance agent.
Tuesday – The Self-Insurance Phenomenon – shocking but true.
Wednesday – The Main Errors We Find When Auditing Workers’ Compensation Policies

***Please note that any of the terms in this post or others can be found at https://cutcompcosts.com/ under the Definitions tab.

Will Workers Comp Funds Recovered Lower Our Mod?

March 23, 2007 By JL Risk Management Consultants

Will A Workers Comp Funds Recovered Lower Our Mod

Will a workers comp funds recovered lower our Mod this year?

Calculator Money Phone Funds Recovered Lower Our Mod Concept

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This question was emailed in from a blog reader from Virginia. The rest of the employer’s question pointed out that the file was six years old. The answer to the question is it depends on the timing of the recovery.Virginia, as in most states does not allow a Mod (Experience Modification Factor) revision from more than four policy years into the past. As the Workers Comp file was more than four years old, the subrogation money will be credited to the file. However, a Mod from six years ago cannot be promulgated again.The funds are known as “in the money” for the Workers Comp carrier. Strangely enough, the money is in a way pure profit for the carrier.

Self insureds are another matter. The money should be immediately returned to the employer as the Third Party Administrator (TPA) had paid the claim from an account, not an insurance policy. The funds that were recovered due to subrogation cannot be applied to the Mod after four policy years maximum. This is due to the way that Mods are calculated by NCCI or the State Rating Bureau.

Hand Presenting Money Decrease Funds Recovered Lower Our Mod Concept

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In almost all cases, the Mods are promulgated from policies four, three, and two years prior to the current policy year. The Workers Comp claims from the policy that expired in the previous year will not be charged to the Mod until the following year.

Over the past few years, there have been a number of lawsuits pursuing the Mod recalculations even though they were from files that were older than four years. The lawsuits are/were alleging the carriers were too slow in recovering and applying the funds which caused higher Mods.

This situation is exactly why the employers should be very vigilant in tracking subrogation or any type of file refund such as an overpaid medical bill. It is not recommended that your company leave it to the carrier to recover and apply the recoveries or refunds to the Mod.