Calculating the Insured’s Lowest Possible Work Comp Mod

Once the Workers’ Compensation Experience Modification worksheet is understood, dare I say, mastered, calculating the insured’s lowest possible experience mod is easy. In fact, it’s ridiculously easy.

Simply “zero out” all actual losses.

Remember, NCCI’s experience mod calculation is:
If boxes (I) and (F) are “0” (no actual losses), the total in box (J) equals the stabilizing value. With the “Actual” row (the top row) limited to the stabilizing value and the “Expected” row, (K), developed as normal, the result is the insured’s lowest possible experience mod.

Following is a demonstration using actual, though completely fabricated, values. The first example presents a mod with actual losses included, and Example 2 has no actual losses (so the lowest mod can be developed).

The lowest possible experience mod for this insured is 0.73.

When developing the lowest mod, the agent and the client must remember four key caveats:

1. Experience mods are individual. The lowest possible mod for one insured is not the same as the lowest possible mod for another insured – even one in the same industry. This is due to factors related to class code differences, payrolls differences and other factors which affect expected losses and other actuarial factors applicable to that specific insured;
2. The lowest possible mod this year may not be the lowest possible mod next year (or the year after that). As “expected losses,” “expected loss factors,” “weighting factors,” “ballast values” and payrolls fluctuate, so, too, does the lowest possible experience mod;
3. Achieving the lowest possible experience mod may not result in the desired savings. Underwriters may need a specific premium for the risk insured, and any reduction in the experience mod may trigger the underwriter to remove credits or even debit an account to counter the lower experience mod; and
4. Accomplishing a “no loss” operation, and thus the lowest possible mod, may require an investment in safety equipment and training to avoid worker injuries.

Knowing the lowest possible mod and the key caveats to calculating and achieving it allows the insured to make a business decision regarding how to manage its workers’ compensation program. The insured must decide if the benefits of achieving the lowest possible mod are worth the time, effort and possible investment. And even if the lowest mod is achieved, the underwriter may negate the effort by removing credits or debiting the account.

Last Updated: May 26, 2017