Workers’ compensation insurance can be a significant percentage of a given employers’ total insurance cost – making it an important subject for brokers to understand. Unfortunately, many brokers shy away from the workers’ comp conversation because they fear it is too complex. However, by educating your prospects and clients on the experience modification factor (also known as “mod,” “ex-mod” or “ERM”) and how it affects premium, you can open their eyes to the potential of loss control and other initiatives – with assistance from you as their trusted advisor.
1.0: the mod to strive toward?
Many brokers and employers have the misunderstanding that a mod of 1.0 is good. Rather, a mod of 1.0 is only average – like saying a “C” on your report card is what you should strive for. A safety-minded company will strive to beat that average by decreasing their losses, thus lowering the mod and their workers’ comp insurance costs.
Breaking down the mod
For any given risk, you can compute the total mod, the minimum mod and the controllable mod. Understanding these numbers will help you explain the mod to your clients and prospects, and emphasize the potential for workers’ comp premium savings that can be achieved through decreasing losses.
- Total mod: This is the current mod, which is used in determining the final workers’ comp premium. The official mod for an employer is issued by the appropriate bureau but can be calculated, projected, and analyzed with the right information and tools.
- Minimum mod: This is the lowest an employer’s mod could potentially go, given their current industry, payroll, expected loss rates and other formula factors that apply. Also known as the loss-free rating, the minimum mod is the mod calculated with current payroll and associated factors, but zero losses. The minimum mod is not the same for all risks, and for any given risk may vary from year to year.
- Controllable mod: The controllable mod is the difference between the current total mod and the minimum mod. When multiplied by a manual premium estimate, the controllable mod represents the dollars your client or prospect has on the table – the difference between where they are now, and where they could be with no losses.
Put it into practice
To use this knowledge in a prospecting situation, talk to your prospect about the mod – some may not even know this term, and then your door is open to start educating. For those that do know it, they may assume 1.0 is a good mod and may not know the concept of a “minimum mod.”
Use this knowledge to challenge the incumbent broker – with a few calculations, you can easily show the premium dollars at stake given their current losses. A tool like ModMaster makes these calculations seamless and provides visual reports to increase the impact of this conversation.
Interested in learning more about the mod?
Check out this blog on attaining a perfect mod score, along with all the other blogs from our resident workers’ comp expert!
© 2013 Zywave, Inc. All rights reserved.