The Experience Mod. Revisited

With a number of policies renewing on January 1, many questions come up regarding the Workers’ Compensation Experience Mod. and the affect on premium.  Below is a rehash of a previous post using the example of a Manufacturing Employer.

The Experience Modification Rating (let’s call it the Mod. for short) can have a significant impact on your Workers’ Compensation Premium. Your Mod. indicates whether your losses are better or worse than expected.  If better than expected, you receive a credit, if worse, a debit is applied.

How it works (this will be a very rudimentary explanation without detailing all of the math):

• The type of work performed by all employees (Defined by a Class Code in the first column of the Mod. Sheet)

• The total payroll

• The Expected Loss Ratio (ELR) per duty performed. (The ELR is listed in the 2nd Column of the Mod. Sheet)

Using the example of a Plastics Manufacturer and limiting the discussion to the employees that Manufacture the Plastic Sheets and the and Clerical Employees in the office:

• The Sheet Manufacturers  have an ELR of 1.55 – this means that for every $100 of premium collected the State of MO (in 2014) anticipates total claim payments of $1.55

• For the Clerical Employees the ELR is just .12 (which reflects their much lower exposure to work related injury).

Determining estimated annual losses (e.g. Claim Payments):

Our Employer pays The Sheet Manufacturers $1,000,000 annually and Clerical Employees $100,000. Now lets see what MO will anticipate in Claims payments:

•  Manufacturing Payroll: $1,000,000/100 x 1.55 (ELR) = $15,500

•  Clerical Payroll:           $100,000/100 x .12 (ELR) =       $     120

Determining the Mod (in very simple terms)

Actual Losses for the policy term (actually 3 years of data is utilized) is now divided by Expected Losses. If Actual Losses are significantly less then expected our Employer will receive a nice credit. Other variables are consider in the calculation, but again this is just a simplified but effective explanation the Mod. 

I hope this proves useful for you. If you would like more information about the Mod. or how to help control your Mod. and reduce your Workers’ Compensation premium, I can be reached at  636-519-0059 or email: dan@hebbeln-ins.com 

Posted by Dan Hebbeln:  [email protected]