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Quick Analysis 1:
Determine if there is a frequency and/or severity problem.

What this can tell you: The mod is driven by loss frequency and loss severity. If the mod is greater than 1.0, you want to know why. This analysis will determine if it is a frequency problem, severity problem or both. 

Expected primary vs. actual primary: primary losses are a measure of loss frequency. Primary losses also contribute more significantly to the mod than do excess losses. On the bottom of the mod worksheet, check box I "total actual primary" vs. box E "total expected primary".  If box I "total actual primary" is greater than expected, then the company is experiencing greater than expected loss frequency. The degree to which actual primary losses exceeds expected primary losses indicates the extent of the frequency problem.

Expected excess vs. actual excess: excess losses are a measure of loss severity. Excess losses impact the mod less than primary losses because they are "weighted" (multiplied by the weighting value which is less than 1.0). On the bottom of the mod worksheet, check box F "actual excess" vs. box C "expected excess". If box F "actual excess" is greater than expected, then the company is experiencing greater than expected loss severity. The degree to which actual excess losses exceeds expected excess losses indicates the extent of the severity problem.

These Analyses Are Easy
with ModMaster

Quick Analysis 1, a frequency and/or severity problem, is identified in the Ratio Analysis report in ModMaster. View our video clip about the Ratio Analysis report.

The Loss Analysis by Policy Period report will help you identify the trends that Quick Analysis 2 and Quick Analysis 3 reference. View our video clip about the Loss Analysis report. Additionally, the Payroll Entry Data Verification report shows total payroll as entered for each payroll code and policy period.

Quick Analysis 2:
Determine if the company is growing.

What this can tell you: There are two business growth modes that should raise a flag for a agent/broker or consultant. If the company is down sizing or if the company is growing very rapidly, you should be having some specific discussions with your prospect or client. This analysis will help you quickly determine the growth mod of the organization.

If the company you are analyzing has exposures in only one state, this analysis is fairly simple. However, if you are working with a multistate mod calculation, you may have to do some addition in your head. The mod sheet contains summary payroll values (column 4 on the worksheet) for each state by policy period. Glance at these summary values to determine if the payroll is increasing or decreasing at an unusually fast pace. Because wage rates have been fairly stable over the past five years, payroll is a good measure of the size of the company. If you see a sharp decrease in payroll (-20% per year), you will want to discuss with the client the possibility of increased workers compensation claims sometimes associated with layoffs, firings, down sizing, etc. If you notice a significant increase in payroll (20% per year), you will want to discuss with your client that it is time to implement more in depth loss control services.

Quick Analysis 3:
Anticipate the expiration of a bad year.

What this can tell you: If your client had poor loss experience one year and that year happens to be the oldest year in the experience rating period, you will want to be the first to identify the possibility of a significant mod decrease in the coming year.

Many organizations suffer poor loss experience in only one of the three policy periods utilized in the mod calculation. The management of some companies do not keep a close watch on their mod or fully understand the calculation. As a result, they may not realize when the bad loss year is about to drop out of the mod calculation. Scan the mod worksheet to determine if the oldest policy period has a disproportionate amount of the losses. A good rule of thumb is: if the total incurred losses for the oldest policy period equals or is greater than 50% of the total incurred losses, then you can expect a significant mod decrease in next year's mod. Of course, this assumes that the new year joining the mod calculation does not have poor loss experience.

Of course, this trend can also work in reverse (view our video clip about the Loss Analysis report for an example). While you may hate to bear bad news, any client or prospect will still value your professional opinion - and the advanced warning that their premium is on the rise due to an increased mod.