This post is one in a 3-part series on the Experience Modification Factor in Workers’ Compensation:
- 4 Ways to Lower Your Experience Modification Rate and Why it Matters
- How to Calculate Your Minimum Experience Modification Factor
- Experience Modification Factor Fundamental – Actual vs Expected
Hey there, Michael Stack here, CEO of Amaxx. So when we talk about the experience mod, I want to go through very quickly today, this fundamental concept of actual versus expected. When you look at the experience mod, it’s starting to understand it, starting to understand what it means is a requirement, a pre-requisite, to be able to use it to your advantage. If you understand how it works and what it means, now, you can use it to your advantage to lower your workers’ compensation, premiums, and lower your workers’ compensation costs. So I want to talk about this fundamental concept of actual versus expected. So, actual versus expected in terms of losses, in terms of claim dollar losses, workers’ comp claim dollar losses. I want to give you an example. I’ll talk through this example and what it means. Let’s think about a roofer they’re up on the roof.
Roofer vs. Tile Guy
You have seen these guys up on the roof; they’re, you know, they’re up a story, two stories, three stories, you know, sometimes a lot higher than that, but you see them up there. It’s a risky type of job. The expected losses for that roofer are going to be higher than let’s say the tile guy, the guy that goes into the bathroom to see in these bathrooms, beautiful tile work. A lot of times, these nice glass or mosaic tiles, it’s this incredible skill that these tile professionals have, but their expected losses are much lower than the guy that’s up there on the roof. So their expected losses are much lower than the guy that’s up there on the roof. If you can start to understand that fundamental concept of actual versus expected. Now you can start to understand how the mind works.
Can the Roofer Have Lower Mod Than Tile Guy With Larger Losses?
And I want you to think about this concept for a second. Is it possible that the actual losses for the roofer are higher than the tile guy? So the actual claim losses are actually higher. The dollar volume of the losses, the total actual losses are higher for the roof guy, but his Mod is actually lower. The roofing guy losses are higher, but the Mod, the ultimate Mod is actually lower. And the answer to that question is yes, of course, because they’re expected to be higher. The roofing guys losses are expected to be higher than the tile guy’s losses. So if the roofing guy’s losses are higher, his Mod can still be lower. Think about what that means. You may need to think about this. You may need to play this video back a couple of times and analyzing your head, understanding that fundamental concept of actual versus expected because that’s all the Mod is that is.
1.0 Mod Is Exactly What Is Expected For Your Losses
If you’re at a 1.0 mod, then you’re hitting exactly what is expected. Your actual losses are exactly what was expected. What the actuary developed. And if you’re Mod is lower than 1.0, then your actual losses are lower. If your Mod is higher than 1.0, then your actual losses are higher; it’s all about actual versus expected, actual versus expected. So when you think about this in the grander scheme of what the Mod means and how it impacts your business, how it impacts your work comp premiums or that of your clients, if you’re a service provider, when you think about classifications, when you think about payroll, when you think about all those different things, we don’t have time to go into today that go into figuring out what your actual versus expected are. It all comes down to that one comparison, understand that concept, and you are well on your way to understanding the Mod, understanding how it impacts your business, and understanding how you can then drive down those costs of worker’s compensation.
And again, my name is Michael Stack, and I’m the CEO of Amaxx. And remember, your work today in workers’ compensation can have a dramatic impact on your company’s bottom line. Particularly if you understand the Mod, everything we’ve talked about today, and you’re in a guaranteed cost type program, but all that being said, it definitely will have a dramatic impact on individual people’s lives. So be great.
Author Michael Stack, CEO Amaxx LLC. He is an expert in workers’ compensation cost containment systems and helps employers reduce their workers’ comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is a co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is the founder & lead trainer of Amaxx Workers’ Comp Training Center , which offers the Certified Master of Workers’ Compensation national designation.
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