As your reliable Massachusetts workers compensation insurance provider, we want to see you pay the lowest premium possible. With that being said, we believe it is important to discuss minimum mods and why they are important to your business.
All workers compensation policies have an experience modification factor associated with them. Sometimes, this factor is a credit while other times it can be a debit. It is important to know that credits reduce premium while debits increase insurance premiums. All businesses should have the same goal in mind: to keep the premium low. However, sometimes claims are made and this goal may not be possible.
In order to determine what we like to call “the controllable premium” it will be necessary for business owners to determine the difference between the minimum modification and your current modification. That difference multiplied by your premium will equal your “controllable premium”.
You do not always need software to calculate the minimum mod. Below is the section of the NCCI experience mod worksheet showing the data for a particular company. Every company has a similar worksheet with NCCI or their State Workers Compensation Bureau. You can see that the mod is 1.28 and they have a 1.10 ARAP.
To calculate the minimum mod, divide the Stabilizing Value of $722,600 by the Total Expected Claims Value – “K” $1,601,752. The answer of .45 represents the Minimum modification this business is capable of attaining.
Once you have this minimum modification factor, it is time to figure out your controllable premium.
So, assume your premium in the above example is $500,000. Because the experience modification factor is 1.28 and the Florida ARAP is 1.10, your unadjusted premium is $355,113 ($500.000 divided by 1.10 divided by 1.28). Your minimum premium is $355,113 multiplied by the .45 minimum mod. factor or $159,800.
Said differently, you have controllable premium of $340,200 ($500,000 less 159,800). That’s how much unnecessary “extra” premium you are giving to the insurance company!!
Doesn’t it make sense to invest some of that $340,000 in outside services and internal staff time in an effort to better manage workers comp exposures and claims? Many have found their budget for these programs just this way.
At Wolpert Insurance, we are dedicated to keeping your business in the loop about Massachusetts workers compensation news and any changes relating to your mod. If you ever have any questions or concerns, never hesitate to ask! We would be happy to show you how to calculate the minimum modification factor!
