The Facts About Experience Modifications


I’ve heard all kinds of different information related to experience modifications and how they are calculated from my clients. There is a lot of confusion on the topic, so I wanted to take a moment to post some accurate information about ex mods. There are also some changes in the calculation methods so I wanted to share the latest information from NCCI and what this means to you.

The National Counsel on Compensation Insurance or NCCI annually produces a MOD calculation for each company. This is the actual MOD worksheet outlining the factors used in determining your experience modification. This data is usually comprised of payroll, premium and claims information from the previous 3 years. The most recent year isn’t included because claims info and actual payroll aren’t available yet. So for example, a 2014 mod will contain policy information from the 2012, 2011, and 2010 policy years. To qualify for a MOD rating, an insured must have had coverage for a minimum $10,000 in premium for one policy period or $5,000 for two consecutive years.

The rating bureau for your state will receive what is called a stat card which contains final audited payrolls by classification for each policy period. Also included are the rates, premium, ex mod for that policy period and the premium discount applied. This information is digested by the rate bureau into their formula to calculate the actual MOD for the coming year. The Ex MOD is your individual landing point of actual work comp losses divided by your expected losses that’s based on the class code exposure (payroll).

Before you fall asleep, here is how NCCI calculates an Ex MOD. NCCI uses a “split point” of a set dollar amount to determine the primary/excess amount of a claim. Currently we are in a transition period where NCCI is changing the split point from $5,000 to a final $15,000 in year three. In summary, a claim is counted at full value until it meets this “split point” to create a ballast that evens out loss experience more biased on the number of claims vs. the total claim amount. Example: A single claim totaling $20,000 will affect an insured less than 10 claims valued at $2,000 because of the “split point” weighting less on anything over the threshold. By NCCI changing the “split point” upward means that the larger claims up to $15,000 will affect the modification more than past years. Payroll in each of the past years per class code will determine the amount of expected losses. These “expected losses” are driven by statistical data from the entire industry in that class code. More or less claims than expected will affect the mod up or down but the claims total is determined by the claims modified by the “split point”

What you need to remember is that the ex mod is calculated by expected losses vs the actual losses. Severity is now weighted more heavily than in the past so a single “shock” loss will move the needle more than ever in the wrong direction.

Please feel free to contact me directly if you would like to discuss your individual situation and how we might be able to help. My website contains all of my contact information and some more details about our products etc.