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Volume 1, Number 3

Understanding the Minimum and Controllable Mods

The Minimum Mod

The Controllable Mod

Why These Values Are Important

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Back to Our Library: Topics on Workers Compensation and Experience Rating

Master YOUR Mod - Go farther than this article takes you with understanding, analyzing and communicating the mod. Check out our popular booklet recently mentioned in Rough Notes magazine! Master Your Workers' Comp Modifier: Control Costs by Understanding Experience Rating

Understanding the Minimum and Controllable Mods
by Tim Coomer, A.R.M

Many agents and employers have the misunderstanding that a workers comp mod of 1.0 is good. This is like saying a “C” on your grade school report card is good. In truth, a mod of 1.0 is only average. A conscientious company will strive to beat the average by decreasing their losses, thus lowering their workers’ compensation insurance costs.  

For any given risk, you can compute the minimum mod, the controllable mod, and the total mod. Understanding the minimum and controllable mod will help you explain the mod and emphasize the potential for workers comp premium savings that can be achieved through controlling the losses that generate the controllable mod.

The following is based on states where the NCCI or similar experience rating formula is in use, however, similar calculations of the minimum mod also apply to New Jersey, Pennsylvania, and Delaware.

The Minimum Mod

To rebuke the assumption that a mod of 1.0 is "good," it is critical to know how a given mod compares to the minimum, or lowest possible, mod for the entity. The minimum mod is determined by calculating the mod using the appropriate payroll for the risk with zero losses. This gives the lowest mod value theoretically achievable by that risk. The minimum mod is not the same for all risks. For small risks (as measured by expected losses), the minimum mod can be as high as 0.90. As the size of the risk (as measured by expected losses) increases , the minimum mod decreases. For very large risks, the minimum mod can go as low as 0.25.

The Controllable Mod

The controllable mod is the difference between the total mod and the minimum mod. For example, say a risk has a mod of 0.95. If the minimum mod is computed to be 0.50 (the value of the mod if no losses had occurred), then the controllable mod is 0.45 (0.95 - 0.50). This controllable piece of the mod is a direct result of the losses that occurred during the experience rating period. Thus, this is the piece of the mod that the risk can control by lowering losses.

Why These Values Are Important

The minimum mod and controllable mod are important for two reasons. For a large risk, these values highlight the savings that are possible by controlling losses. A large risk with a mod of 0.95 may still be able to achieve significant savings through loss control and loss prevention activities. The risk may perceive the 0.95 mod as "good", however, if the minimum mod is 0.50, there is significant room for improvement. For a small risk, these values can be used for setting realistic expectations; for example, a small risk that sets a goal of having a 0.80 mod will not be able to achieve it under any circumstance if the minimum mod is 0.85.

ModMaster software computes the minimum and controllable mod for each calculation you perform. These values are depicted and associated with premium estimates on a number of ModMaster reports such as the one below. For this risk, an estimated premium of $126,000 could be the goal, but an additional $174,000 is being spent due to the controllable mod!