Perfect and yet attainable scores apply to many areas of life: credit reports, bowling, the game of Yahtzee, and ACT college prep exams immediately come to mind. These are cases in which the higher the score, the better. Less commonly, an excellent score is represented by a low number: as Zywave’s VP of Sales Operations Craig Passler would be quick to point out, golf is an example, even if it doesn’t have a true perfect score. (Get to know Craig through one of his blog articles on sales forecasting and the weather.)
If you think of your experience rating mod as a game of golf, you want it to be under par – not just average. You also want to know what your company’s perfect score can be – and then implement loss control and prevention measures to attain that perfect score.
Did you know that you can have a perfect score on your workers comp mod?
You can. But here’s the tricky part: the perfect score for your mod is unique to your company. It will be different from the perfect score of the company next door, or your competitor across town. It may change somewhat from year to year. The variability is due to the fact that the mod is based on your unique industry and payroll. But it is a real, attainable number, not just a theoretical best case scenario.
Many employers have the idea that a workers comp mod of 1.0 is, if not perfect, at least the goal that they want to reach. This is like saying a “C” on your grade school report card is good – or that you’ve shot par on the golf course. You may be pretty happy with it, but in truth, a mod of 1.0 is only average. If you want to beat that average, and thus lower your workers’ compensation insurance costs, you’ve got to know the value of your minimum mod – your perfect score – and your controllable mod.
Every mod value can be broken into two pieces: the minimum mod and the controllable mod. The minimum mod is that perfect score: the lowest possible mod if your business had no losses for the experience period (typically three years). The minimum mod is also known as the loss-free rating, especially in California, where the value is included on the experience rating worksheet. The controllable mod is the difference between your actual mod and the minimum. This value is a direct result of the losses your company had during the experience period.
Attaining your perfect score directly impacts your work comp premium costs
The minimum mod and controllable mod are important for two reasons. For larger companies, these values highlight the savings that are possible by controlling losses. For example, a company with a mod of 0.93 may think they are doing quite well, however, if they have a controllable mod of 0.25, there is significant room for improvement. In this example, which had an estimated manual premium of $250,000, this translated to a $62,500 cost savings!
For a small company, the minimum and controllable mod values can be used for setting realistic expectations; for example, a small risk that sets a goal of having a 0.80 mod will not be able to achieve it under any circumstance if the minimum mod is 0.85.
No matter the size of your company, knowing the controllable mod is critical to understanding the possible savings achievable by reducing that controllable mod to 0 through loss control and loss prevention activities.
In 2013, most companies’ loss-free rating will be dropping several points due to a change in the experience rating formula. This may represent even more opportunity to realize savings. Ask your insurance agent to discuss your minimum and controllable mod values – and estimate the premium dollars you can save by attaining that perfect score.
– Kory Wells, WorkCompEdge Blog Editor
Article first published 2/18/2009; updated 3/13/2012
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