One thing I hear a lot is “the rates are the rates, what can I do….” But that statement is a myth. Business owners can take back control by becoming hyper focused on safety and the underlying factors used to calculate the experience modification factor (MOD). The least expensive claim is one that does not happen. But let’s face it; when you have employees, it is just a matter of time before one is injured on the job.
The below tables will help you to figure out what claims are costing you. All you need is your last NCCI Workers Compensation Experience Rating Worksheet (MOD worksheet), and adjust the numbers accordingly.
How is a MOD calculated?
The data of each year is compiled on the below chart to give you your MOD.
You can see from the above that the actual totals (J) is divided by expected totals (K) to calculate the MOD. The data of each year is compiled on the below chart to give you your MOD.
Take the above example: A company with a MOD of 1.57 and $50,000 of manual premium can expect to pay around $78,500 (very simplified!). Make sense so far?
What Does a Claim Really Cost?
If you took out a loan for $10,000, would you rather pay back $6000 or $19,500? If you are not controlling your claims, you could be paying back at the higher rate.
Using the above MOD worksheet, let’s assume it includes a lost time claim from 2014 for $10,000. Now pretend it didn’t happen, adjust the Actual Totals (J) = $105,504. The MOD would be 1.44. Your premium would be approximately $72,000. The $10,000 lost time claim costs you approximately $6,500 in increased premiums, and it is on your MOD for the next 3 years. You will pay approximately $19,500 in higher premiums. Lost time claims will greatly impact your costs of coverage. But what if the claim was controlled and kept to “medical-only”? Medical-only claims are discounted 70% when calculating the MOD. The increase in premium would be $2,000. The $10,000 the insurance company paid costs you only $6,000 over 3 years. The above calculations are for illustration purposes and will not be constant across every mod. You should also know that claims over $16,000 contain a few other factors which must be addressed.
What Can You Do?
For employers wanting to control the cost of workers compensation, become hyper focused and vigilant on safety and when a claim does happen, work to keep it medical only. Your insurance advisor can show you how to control claims, what your lowest possible MOD is, and build a game plan to drive results in the right direction. Please let me know if you have any questions or would like need help with strategies to lower your MOD.