Workers Compensation overcharges identified and recovered

Experience Modifications – What's it all About

Verify your Massachusetts ex-mod and ARAP here. Just enter four numbers from the Mass rating bureau's worksheet (Excel required).

Verify your California ex-mod here. Just enter four numbers from the Calif. Insurance Rating Bureau's worksheet (Excel required).

Verify your New York ex-mod here. Just enter four numbers from the New York Comp. Insurance Rating Board's worksheet (Excel required).

Contingent Modifiers

A growing phenomenon in workers compensation is the ‘Contingent’ or incomplete experience modification. For a variety of reasons, many insurers omit the required data submissions that are the basis of your ex-mod. Of the hundreds of modifiers we review annually, nearly 50% are incomplete. The NCCI claims 3% out of 1.5 Million annual e-mods are Contingent but our own experience suggests otherwise.

If the cover page of your firm’s experience modification contains the phrase “Contingent Rating” then it is incomplete. We have had much success helping employers to correct incomplete modifiers.

But a word of caution. Before you challenge an incomplete ex-mod on your own, be certain that the missing data is favorable (high Expected Losses and/or low Actual Losses.) Otherwise you could end up with a modifier that is correct, but higher than the original.

For help with your contingent modifier, drop us a note: contact@zapcomp.com

Attention Clients of PEOs and Employee Leasing Organizations

Newly enacted procedures by the NCCI concerning labor contractors will impact your present and future experience modifiers. More information can be found here.

Attention Massachusetts Employers, Brokers, and Advisors

Announcing MassMod- a software application service that

calculates your e-mod and ARAP
shows how the e-mod and ARAP impact your premium
converts severity claims (greater than $5000) into premium dollars
converts frequency claims ($5000 or less) into premium dollars

This is a service that will calculate your Massachusetts factors. You provide the data, we provide the answers.

To see a sample report, click here.

For a price quote and to get started, we just need some basic information from you.

Verify your Massachusetts ex mod and ARAP here. Just enter four numbers from the Mass rating bureau's worksheet (Excel required).

Narrative
Your experience modification is a statistical tool that is used by the insurance industry to accomplish two goals.

The first goal is to tailor the price you pay for workers compensation to the insurance carrier’s cost of providing that insurance. Since no two employers in the same industry will have similar claims histories, fairness requires that the employer with the greater claims burden pay more. Not only will that distribute the cost of this insurance more equitably; it also places the employer that is less safety conscious at a competitive disadvantage.

The second goal is to provide employers with the financial incentive to improve the safety of their workplace. When someone knows that he or she will have to contribute towards the cost of their claims, they are more inclined operate a safe workplace.

Modifiers are applied to the policies of employers whose premium is above a certain threshold. In most states, that threshold is either $5,000 for two or more years of coverage or, $10,000 during any one year.

Experience rating is mandatory. If it were not, anyone with a factor greater than 1.00 would just opt out of the plan. In most states experience modifications are calculated by the NCCI on behalf of the insurance companies that consist of its membership. The NCCI is a private for-profit corporation. Originally it was established and funded by the insurance industry. It provides the actuarial, statistical, and rule-making apparatus that is the underpinning of workers compensation pricing in the United States.

Several states have their own rule and rate-making bureaus. While these are officially independent bureaus, all share some statistical, administrative, and rule-making functions with the NCCI. These "Independent Bureau" states are divided into two groups. The first are members of the NCCI’s Interstate Rating Bureau. Employers in these states are interstate (multi) rated when they conduct operations in another state that is also a member of the Interstate Rating Bureau. These states are Indiana, Massachusetts, Minnesota, New York, North Carolina, Ohio, Texas, and Wisconsin.

The second group of states consists of California, Delaware, Michigan, New Jersey, and Pennsylvania. Employers in these states are always intrastate (single state) rated. They are not members of the Interstate Rating Bureau. While the underlying formula in their experience rating plans approximate the NCCI’s own formula (except New Jersey which is unique and Michigan where the formula is at the discretion of the insurance carrier), there are some differences . These modifiers are never calculated with payroll or claims from another state. If a company has operations in one of these states and also has operations in a NCCI or independent bureau state, their policy will contain two different modifiers (provided premium levels qualify for the modifier).

It is surprising how well coordinated this system works. Insurance carriers submit claims and payroll data to either the NCCI or the local rating bureau, and most data usually ends up in the right place. When slip-ups occur, it is when an employer changes from an intrastate to interstate designation, adds or deletes an entity, or changes the coverage dates on their policy. If your mod factor is calculated by one of these independent bureaus, it would be worthwhile to verify that your insurers have transmitted your payroll and claims data to the bureau correctly.

When checking the experience mod calculation, always review the following inputs:

1)	Payrolls, by classification. These are the payrolls from past years’ premium audits. They are not the payrolls that are shown on the policy when it is first issued.
2)	Losses – These are the total of paid and reserved claims; all valued at a date in time that is at least three months before the modifier’s effective date. Typically the valuation is six months before the modifier becomes effective. Losses in the modifier do not include loss adjustment expenses. A new money-saving rule requires that claims be coded correctly. Since 1998 (in most states) modifiers discount 70% of medical-only claims. This means that the value of all losses with no indemnity component (lost time) is reduced to 30% of the total paid. But this will only occur if the insurer has properly coded your claims. We have found that many experience modifiers are wrong for this reason alone.
3)	The Experience Rating Period (ERP)- This is where lots of mistakes are found, (especially when policies have been cancelled before normal expiration). The ERP is 36 consecutive months during which all policies that cover an employer are included in the mod calculation. Normally the ERP begins forty-eight months before the effective date and ends twelve months before a mod becomes effective (see above for a more precise definition).

This sections has provided a brief overview of the Experience Rating Plan. For more in-depth discussion of this and other Workers Compensation subjects, order a copy of Workers Compensation - Tricks and Traps For more information, just click on the cover.




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